Official RBA cash rate remains on-hold at 1.5%. All lenders have now increased investor rates out-of-cycle to around 4.5% – 5.5% variable (discounted) especially on interest-only loans. If your risk profile is such that future rate rises are of concern, then a finance review to look at fixed rates is recommended. I personally prefer to remain variable for flexibility but will be looking to fix some lending over the next 12 months. Get in touch if you’d like the finance team to have a look.
Whilst getting an investment loan will become harder going forward, this is the natural real-estate and business cycle unfolding and is very similar to where we were in the late 1990’s and early 2000’s.
The main items to affect investors is changes to depreciation on plant and equipment and the scrapping of travel costs. For genuine investors, the inability to claim travel costs will have no significance on cash flow or asset performance. The change to plant and equipment rules will have potential impact for those that purchase established rather than build new as you are not the original owner of the items (eg dishwasher, fans, aircons etc)
Bottom line: by constructing and acquiring new assets, you will preserve the right to claim full depreciation on both construction and plant and equipment.
Recent news includes the $89 billion submarine and ship building project which will positively impact the SA and WA economies. Infrastructure-wise, the inland rail project linking Brisbane and Adelaide via Toowoomba is on the cards; south-west Sydney will be getting a new international airport; and final investment decision on the $15 billion Adani coal mine has been reached which will further improve the Qld economy and of course land values.
Overseas, China has announced its One Belt – One Road policy to begin building and reinstating trade links with Europe and the Middle-East and the US is planning to embark on a national infrastructure program. As investors, our key takeaway is all this progress will require commodities which Australia has an abundance of. We just need to identify the markets poised for growth and invest there intelligently using a proven strategy.
Rate-Reducer Home Loan
For those with an owner-occupied and investment loan (or multiple), a unique loan product is now available that actively fast-tracks home ownership through a heavily discounted owner-occupied rate of less than 3.8%. This may not suit those with DHOAS loans but if you want to investigate further or have family or friends that may be interested, then please get in touch.
As the EOFY is upon us, below is a summary of allowable deductions:
- The cost of advertising for tenants for your property
- Bank charges and interest on loans
- Body corporate fees and charges
- Council rates, electricity, gas and water charges (unless these are borne by the tenants)
- Building, contents and public liability insurance
- Some legal expenses and lease document expenses
- Depreciation – but the rules for this have recently changed and will affect purchasers of established properties after 9th May 2017
- Pest control
- Maintenance and service costs
- Gardening and lawn mowing costs
- Any fees and commissions paid to property agents and quantity surveyors.
Generally speaking, you are not able to claim a tax deduction for any expenses that are related to acquiring/purchasing the property; as well as costs that are not actually incurred by you or costs not related to the rental or income generation from the property. Conveyancing costs, stamp duty and advertising the property for sale – which are all related to the acquisition or disposal of the property – are generally not able to be claimed as deductions. However, in relation to Capital Gains Tax, you are able to add these costs to the property’s cost base thereby reducing your CGT liability if you sell.
The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.
The biggest risk is not taking any risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks — Mark Zuckerberg