Blog

Why build an investment property?

Building a new house for investment allows the investor to target the markets' need and exploits the greatest value possible since both potential purchasers and renters consider it highly desirable to move into a brand new dwelling.

Where the new dwelling is kept for rental this offers the investor the maximum possible depreciation allowances making the investment more desirable especially where the investor is trying to offset profits in other areas.

Although the benefits of building for investment are undeniable there are also factors which should be considered to ensure that your decision to build does not have unintended consequences.

The most obvious factor when considering building is the fact that it takes time to build. As such if the house will become your home you will need to arrange somewhere to live until building is finished. Typically this will be in the local area allowing you to be close by in case you need to go to the block to check on the progress of building.?

Another important factor that must be considered with any form of property purchase (not just building) is that there may be unexpected costs. However this is particularly important when building a home as these unexpected costs may be significant. Some examples of items often overlooked in the excitement include site preparation or attending to things overlooked in the building contract. There are many items which you may need to spend more money on to finish off your house after building. These include items such as floor coverings, air-conditioning, curtains and landscaping.?

It is important when building a house to incorporate the possibility of delays in completing the house. Delays may occur for a multitude of reasons but some of the most common include delays due to the council approval process and delays caused by bad weather.

When using an experienced Development Consultant many of the risks of building can be mitigated however it is important that you ensure that you fully understand the process before proceeding.

What is an NRAS consortium?

A NRAS Consortium is a company that manages your tax incentive with the Government on your behalf. They make sure your tenant remains eligible so that you will receive your tax credit each year from the government.

The consortium will then charge you an annual audit fee ranging somewhere between $500 - $700 p.a depending on the consortium.

Eligible tenants are individuals or families who are considered to be on moderate incomes. There are income limits for tenants and they must prove their salaries before applying, to be an 'eligible' tenant.

Once this is confirmed, then they can request to be your tenant and if agreed by you, become your tenant and receive a rental discount of 20% on your property.

There is no shortage of tenants will to take advantage of the 20% savings on there rent, particularly given that there are around 1.5m households who currently fall in this category

What are NRAS properties?

NRAS is short for the National Rental Affordability Scheme and was legislated by the Government in 2008 and strongly supported by all political parties.

The scheme was implemented to deal with the massive short fall of affordable housing in Australia. The National Housing Supply Council estimates by 2013 there will be a deficit of affordable dwellings of more than 200,000.

The purpose of NRAS is to supply quality rental homes at reduced rents for the large number of Australian families unable to buy their own homes or to afford the full cost of market rents. Affordable housing is aimed at helping semi professionals such as policemen and woman, social care workers and teachers live closer to where they work.?

There are three parties involved the Investor, The Consortium and The Tenant

Purchasing an NRAS approved dwelling is exactly the same as buying any other investment property. You own own the property and retain possession of the title and you may choose opt out of the NRAS scheme at anytime.

The benefits to you as an investor you will receive a tax credit each year for 10 years with the minimum tax credit of $9,524.This tax credit increases each year with the rental component of CPI.

A government approved consortium is appointed to manage the tax incentive on your behalf and appoint a tenancy manager to manage your property.

As the investor you have the option of choosing your tenant from a shortlist or you can rely on the agent to handle all of this for you.

Your ??eligible?? tenant will then pay rent at 20% below market value rent.?

The benefits of SMSF

The popularity of Self Managed Super Funds (SMSF) has surged in recent years and now represents nearly one third of all super assets. Why?

The main appeal of this investment is freedom to choose your own destiny. SMSF also allows you to invest directly into residential and commercial property - an option not generally available through other super arrangements.

Depending on your circumstances it can be more more tax effective to buy property through an SMSF rather than buying one outside super. This is because the rental income is taxed at the superannuation tax rate of 15% compared with your marginal tax rate. Once you retire there is also the possibility that the SMSF can pay you a pension tax free.

When the property is eventually sold, capital gains are effectively taxed at 10% (if owned for more than 12 months) and can potentially be tax free if the pension period has started.

The financial benefits of investing in property through SMSF can be significant however property investment rules differ so sound financial advice is essential to ensure decisions made are compliant and reflect your investment strategy.

Self Managed Super Funds are growing

Self Managed Super Funds (SMSF) are not new however with the disenchantment with managed funds after the GFC investors are now wanting to take back control of their retirement savings.

This has been followed with amendments to existing laws to allow SMSF to borrow to purchase investments properties.

There are already over 450,000 SMSF and this figure is growing at over 2,500 per month according to the ATO. Furthermore the Australian Prudential Regulation Authority (APRA) reports that as of December 2011, 30.6 percent of super assets were held within SMSF.

With the right expertise and advice what some consider to be a complex and difficult process can be streamlined to ensure that you can receive all the benefits without the headaches.