Do you know how to create a proper financial strategy when building a property portfolio to create wealth?
Buying an investment property continues to be one of Australia’s favourite ways to invest. Investing in property is a fantastic way to increase your wealth to secure your financial future and has for many years been a safe way for families to get ahead.
The cost of owning an investment property can be surprisingly low after you take in to account your rental income and the tax deductions you are entitled to.
What Can You Do To Have Your Portfolio Perform At Its Best?
There are a number of things you must do to ensure your portfolio is set up correctly and performing the best it can. We share our top 5 tips:
1. Use The Correct Finance Structure
One of the most important components when borrowing to purchase an investment property is to set it up with the correct finance structure.
It is wise to use a professional lending specialist, someone who is efficient in arranging investment lending debt. You will benefit from their knowledge and wisdom and they will do all the hard work for you.
Your lending specialist will have access to numerous lenders and often to products which the general public are unable to access. As they have regular contact with their panel of lenders they will know which bank to use based on your particular requirements and what will suit you best.
2. Interest Only Or Principle And Interest Loan?
Interest on an investment property loan is generally tax deductible and whether you choose a fixed rate loan or a variable rate loan will depend on your personal circumstances.
Most investment loans are usually set up as interest only (rather than principal and interest) as this increases the tax effectiveness of your investment, particularly if you have a home loan.
The reason interest only loans work well for investment properties is that with a principal and interest loan your negative gearing benefit reduces as you pay down the amount on your loan.
3. Use The Equity From Another Property
Leveraging equity in your home or from an investment property can be an effective way to buy an investment property.
A popular strategy is to take out an equity loan to use as a deposit for your investment property purchase, rather than to increase your current home loan. This means that the loan used to purchase the investment property is tax deductible.
What is equity? Generally speaking, equity is the value of an asset less the amount of all liabilities on that asset.
Assets – Liabilities = Equity. As an example, if your home is currently worth $750,000 and you have $250,000 remaining to pay on your mortgage then you currently have $500,000 worth of equity.
4. Keep Your Home Safe
It might be wise to keep your home safe by ensuring it’s not linked to your investment debt. This way the banks do not have greater control over your properties than you do.
5. Annual Health Check
We like to conduct an annual finance health check with our clients to identify which areas of their financial life plan might need reviewing. It is critical to keeping their financial future on course.
What we often see when we initially meet with our clients, is that very few do not have a debt reduction strategy to pay off their home mortgage quicker.
Henry Ford once said “It is well enough that people of our nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
If you’d like to get some individual advice on how to finance your investment property and become a property investor (or a smarter one), we suggest you speak with your mortgage broker or email info@curtispropertygroup.mysit3.com and we can connect you with one of our strategic partners or help in any way we can.
** Please note this information is for general information and should not be taken as constituting professional advice. You should always seek independent financial advice relating to your unique circumstances. **
