Q. How can I best utilise a negative gearing strategy?
A. Negative Gearing is where you buy a property with borrowed capital which has more expenses than income and requires additional payments by the investor to fund the loan shortfall.
This loss can potentially be fully offset against other forms of income (e.g. salary and wage) in the investors income tax return, thereby allowing them to retrieve some of the losses through income tax savings.
Investors buy negatively geared property because they believe that, at some time in the foreseeable future the property value will rise so much that the shortfall payments will be justified and that they will be able to make up all their losses and earn a profit with a large gain made upon sale
Q. Is it the right time to buy?
A. Numerous property investment books and publications will attempt to sell the idea of ‘getting rich quick with property.’ However, through many years of experience and countless property projects, we have developed the concept of ‘Time is the Guru’. It centres around time in the property market rather than the right time to buy.
Q. What sort of property should I be looking for?
A. The type of property that each individual investor should be searching for depends on the type of investor they would like to aspire to be. We break down property investors into three groups; passive investors, active investors and developer investors. Which investor are you?
Q. Do I buy in my own name or an alternative structure?
A. An extremely important aspect of property investment involves purchasing the property through the correct structure. Each type of investment strategy may require structuring the investment differently, in order to maximise asset protection while ensuring that you hold the assets in the most tax-effective structure. This will depend on each investors individual circumstances.
Q. What’s Capital Gains Tax and How does it work?
A. Capital gains tax is the tax you pay on any capital gain you include on your annual income tax return. It is not a separate tax, merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate. You make a capital gain or a capital loss if a CGT event happens, sale of an investment property in this particular case.
For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset – for example, if you sell an asset for more than you paid for it, the difference is your capital gain. Capital Gains Tax is a detailed area and is heavily dependent on an individual’s specific set of circumstances.
Q. Will the bank lend me the money I need?
A. Banks and financial institutions review mortgage applications based on two key questions:
- How much can you put forward up-front?
- Can you service the outstanding debt?
