Frequently Asked QuestionsEven though we answer some of the most frequently asked questions below, there are literally hundreds more that can be asked at so many different levels of property investing, which is why we run our 12 hour Financial Freedom workshops.
What if I don't have a deposit?
When you think of a deposit, you think of the cash required upfront to purchase a property.
Cash is not necessary if you have equity in your own home. Your home can be used as security to purchase a new property. For the first-time property investor, initial concern at using existing equity is a natural reaction.
After all, your home is your most important asset. If you were borrowing for a speculative venture like shares or a new business, all of which have statistically high risks, then concern would be warranted. In reality, using the equity in your home to purchase another residential property is considered to be conservative.
As your investment property grows in value, you can ask the bank to revalue it, rewrite the loan, and release your family home as security. Lenders today readily advance 80% of a property’s value.
Considering the projected value of your investment property, your home may be released in as little as three or four years.
If I am on a low income how can I afford an investment property?
Real Estate Investing Australia’s plan is designed for people on average incomes and above. It is self-paced and you can progress as, and when, you can afford to. Our coaches will do a free Cash Flow Analysis Program so you can determine what you can afford. In addition, the lending world constantly changes and new products are regularly released so you may well be surprised about the borrowing options available to you.
I have been to my own bank and they've said 'No' to an investment loan. What do I do?
All lending institutions are limited by their respective rules and guidelines. Real Estate Investing Australia’s Loans Accredited Mortgage Professionals work closely with several lenders who understand our concept and are therefore more likely to say ‘Yes’. Different lenders have different (and ever-changing) policies and you should not be dissuaded from seeking a second opinion. (Don’t take what the banks say as gospel).
What if interest rates rise?
Economic growth, inflation and interest rates are inextricably linked. Apart from unforeseen mishaps, our economy behaves in a cyclical fashion, sometimes known as the “boom and bust effect”.
Interest rates rise, peak, fall, then bottom out, only to eventually rise again. There are always clear indicators as to which part of the cycle the economy is going through. The Reserve Bank interest rate increases and reductions are intended to smooth the trends.
Fortunately for property investors, rising interest rates and inflation are linked to an increasing need for rental properties. The clever investor uses prevailing economic conditions to his or her best advantage.
While interest rates could rise given the strength of the current economic cycle, it is possible to buy investment property and lock into fixed interest rates. Rates and rental returns may rise, but your repayments will remain fixed. Alternatively, flexible rates might be preferred if you forecast that we are nearing the peak. (Note: specialist financial advice should be obtained prior to making this decision).
In addition, when you are sitting down to work out the numbers, be conservative. If you decide not to choose a fixed rate for your investment, anticipate rising rates. For planning purposes be prudent and use a higher interest rate for your calculations, for example 1% above the current rate.
What if property prices stagnate?
Population increases in concentrated areas push up prices. Our research shows where this is happening or is expected to happen and we target those areas. Many of our clients purchase properties in several states to increase the growth of their portfolio.
Should I buy one house for $1 million or two for $500K?
Depending on the area, it is generally better to buy more properties at a cheaper price, thereby multiplying your rental opportunities.
One million dollars can buy several types of properties: a luxurious house in the country, a premium inner city apartment or two suburban homes. The country estate, although a romantic notion, is a gamble to say the least.
City apartments have a relatively high turnover. They are fine provided you are certain the area is protected and improving. Urban development can compromise a previously well-positioned apartment. The well-maintained suburban home offers the most advantages, attracting the lion’s share of the tenancy market.
Older properties should be avoided, unless you are an experienced renovator with lots of time and money. Many new homes now offer Master Builder guarantees of workmanship for up to seven years, which is a great bonus.
In addition, less expensive properties like suburban homes yield a higher “rent to mortgage ratio”. And if you’re planning to sell on retirement, the desirable mid-range suburban home draws more buyers, particularly first-time buyers.
What if my partner doesn't want to risk the family home?
People usually say ‘No’ because they don’t understand. Our strategy sessions will show both of you how you can save on tax and retire early with a substantial, ongoing, tax-free income. Your investment property will actually safeguard your home, which will be costly to maintain by the time you retire.
What happens if I lose my job?
Real Estate Investing Australia is conscious of the need to provide a safety net to clients. Your coach can show you some strategies that are invaluable in these unfortunate circumstances. One such strategy is to extend your loans to cover the expenses incurred while unemployed or ill. When setting up your loans, arrange a ‘line of credit’ facility, which can be drawn upon as and when needed. As your investments are forecast to increase, never, never sell. For those of you seeking additional peace of mind we can assist with mortgage protection insurance.
Is there a 'good' or 'bad' time to invest in property?
Throughout recent and more distant history there have always been supposed ‘bad times’ to invest in property. Despite this, an analysis of property price growth over many years has revealed that prices generally rise between 2% and 4% above the prevailing inflation rate. Whilst we can’t predict future values, historical data from the Australian Bureau of Statistics shows median property prices doubling, on average, every seven to ten years, regardless of the time of investment.
What if I already have a mortgage?
In all likelihood your home is worth a great deal more than your mortgage. Your mortgage is not a problem; instead, it is actually an opportunity and a tool to accumulate investment property.
Most people don’t realise that their family home is considered “equity” even if it is not fully paid off. You can use your equity to raise the finance to purchase one or more investment properties, including all the usual start-up costs such as conveyancing fees and stamp duty.
Banks view median-priced property as a good investment and willingly provide financing for it.
Can I buy an investment property and then use it for holidays?
If you want a place primarily for your own and your friends’ holidays, on the assumption that it will also serve as an investment, think again. Under these conditions none of the expenses are tax deductible, including interest.
At the time you decide to buy a holiday house, it may be located in a popular destination, but that can change over time. It is important to remember that holidaymakers are very fickle—there’s a lot of Australian coastline to choose from!
Most people want to use their holiday house or unit at peak times, and then wonder why it doesn’t let at other times and under-performs as an investment. It could well turn out to be simply an expensive luxury.
What about land tax?
Land tax is a state-levied tax imposed on those who own one or more investment properties (other than their own home).
The tax is calculated on the total land holdings within a particular state or territory. Land tax is based on the unimproved value of the land only.
The tax does not apply to any buildings. Each state has different rates and rules. New South Wales land tax rates have increased steadily over the years.
In NSW, where the land tax threshold is $482,000, the land tax applicable is $100 + 1.6% of the value of the land. Not surprisingly there’s considerable public concern as high land values have caught out many property holders, particularly the elderly, who’ve never paid the tax before and are finding it difficult to manage
In Queensland, however, the threshold is $600,000 before you have to pay any land tax. As property values are lower in Brisbane than in Melbourne or Sydney, you could own two properties in Queensland and still be exempt from paying land tax.
Why hasn't my accountant told me all about property investing?
Accountants must maintain expertise in accounting and taxation affairs and the many hundreds of changes that take place each year. Many have insufficient time to keep abreast of specific aspects of investment such as property. Real Estate Investing Australia is knowledgeable in all aspects of property investment and we will be happy to help educate you about the benefits of property investing.
Does it cost us any money to setup a property portfolio or purchase a property through your company?
Absolutely not! Real Estate Investing Australia do not charge our clients any money to purchase property through us, or to restructure their finances. We are licensed real estate agents and make our money from the commissions that are paid when you purchase a property from us.