With talk from the federal government of limiting Negative Gearing, many commentators are talking about seeing massive changes to property investment and to this end a potential property crash. And many of these alarmists have talked about the stock market crash being the end of people investing. There are going to be changes in what our government will allow regarding tax deductions. There has to be! But it does not spell the end of property investment.
We simply need to look at different options. For those who simply want to park money and not have to worry about anything, the smartest investment for anyone who has no direct knowledge of development, is to target revenue neutral properties.
A revenue neutral property is where the interest paid on borrowings is equivalent to the rental income for the property. There are also outgoings each year such as insurance, property management fees and rates and these are quite often covered off by the depreciation deduction that is highly unlikely to be removed in any government changes. Depreciation is highly unlikely to be targeted by any changes to investment as this would affect all businesses adversely and the spending those business make, thus affecting the governments bottom line.
In many new estate suburbs, you can purchase a family home for around $400k and get $350 – $370 per week in rental returns. In today’s market, this should be enough to cover your interest payment, even assuming you have borrowed 105% of the purchase price to cover stamps etc. $400k at 4.5% = $18,000 and $350 X 52 weeks = $18,200.
The difficulty comes in making sure the property you purchase has the attributes to give the best chances for capital growth and also the best chances of leasing quickly. If you are looking to invest in property this year please feel free to call for a chat.
Ian James
Director
JPP Buyer Advocates