Investment Properties

Rental Properties

We recommend you see us before you buy or sell a property so we can advise you on the tax consequences and whether it will achieve what you hope.

Buying a rental property – whether it is a domestic or commercial property – is a big step.  Typically it is the largest investment a person makes in one go apart from their own home.  Property can be a great investment, but it is not for everyone.  It costs a lot to get in with stamp duty, Solicitors fees and bank loan costs.  It also costs a lot to get out when selling with Real estate agent and Solicitor fees.  Property goes through up and down cycles like all investments and it is easy to make or lose a lot of money very easily depending on what market prices are doing.  No one expects to have to sell when the market is down, but sometimes life changes force sales which can bring taxable gains or losses at inconvenient times.  Having up to date tax advice is very important in this case.

Holding property can be expensive.  In addition to rates and repairs, there can be body corporate fees and land tax. It is important to have an independent analysis of the property you are considering buying before you sign anything to check that you can afford to buy it.  You also need to know how buying a property will affect your tax return.  Generally property is held for a long time and long term affordability is vital otherwise financial stress can result.

There have been a lot of books published in the last few years that talk about ‘positive gearing’.  These books are often misleading as very few properties are positively geared.  Ask us about positive and negative gearing.

What is a positively geared property?

A positively geared property is when the rent received on a property pays all the bills and there is money left over.  This includes loan payments, property agent fees, rates, insurance, repairs etc.  This is quite rare.  Not surprisingly, a positively geared property will increase your tax bill.

What is negative gearing?

Negative gearing is when the costs of holding a property are more than the income it generates.  This is the usual situation and is how people get tax refunds from property.   Negative gearing gradually decreases as a person reduces their bank loan because interest will reduce in line with principal reduction.  Negative gearing will not decrease if the loan is interest only.  It is unlikely a property will ever be positively geared when an interest only loan is in place (depending on how much the investor borrowed in the first place).

For an analysis of how a property purchase will impact on your cash flow and tax, call us.

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