Experts have reminded first-time investors to be mindful of clearing up bad debts, and to not forget about claiming depreciation on the property.
Ditch other debts and clean up your credit history
Rebecca Jarrett-Dalton, founder of mortgage broking firm Two Red Shoes, reminded borrowers to clean up their other debts prior to applying for an investment home loan.
“There’s a huge benefit in offloading any unnecessary debt – a $10,000 credit card limit can mean an $80,000 reduction in borrowing capacity before DTI [debt to income] is in play,” Ms Jarrett-Dalton said.
“If you have two or three cards, do you need them?
“If you are going to accelerate the repayment of any debt it’s a good idea to start with non-deductible or so-called ‘bad’ debt.
“Make sure you are meeting your existing repayments. It’s worth noting that with the introduction of comprehensive credit reporting, your credit history may include up to 24 months of repayment history, and many lenders give this a lot of credence.
“We are seeing a huge swing towards positively geared properties or those with higher income streams; dual income from one property, regional areas with good balanced economies and stable futures, outer lying areas where the land is more economic and rent return is better.”
The tax depreciation that lasts a lifetime
Bradley Beer, CEO of quantity surveyors BMT Tax Depreciation, said many investors forget or are surprised to learn they can claim property depreciation as a tax deduction over the life time of their investment.
“Every day we hear investors saying that they think their property is too old to carry depreciation deductions. But depreciation is available on almost all investment properties regardless of age,” Mr Beer said.
Investors can claim two categories of depreciation – capital works, and plant and equipment. Capital works essentially refers to the structure of the building such as the walls and roof – these can be claimed for up to 40 years.
Plant and equipment refers to removable items like carpets, appliances, curtains and so on, and the depreciation schedule is shorter.
Depreciation on plant and equipment can’t be claimed in second-hand properties unless the asset is brand new.
“Capital works typically make up the bulk of a landlord’s total depreciation claim, generally 85-90%,” Mr Beer said.
“We hear clients say all the time, ‘I haven’t made any major renovations so it’s probably not worth it’.
“But there are definitely opportunities to claim that people don’t think about – some of those little things that you’re doing every few years can add up.
“It could be installing a new air conditioner, a pathway or a garden shed.”
Buying an investment property or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for investors.
|Rate Type||Offset||Redraw||Ongoing Fee||Upfront Fees||LVR||Lump Sum Repayment||Additional Repayments||Pre-approval|
|FEATUREDREFINANCE IN MINUTES, NOT WEEKS|
Variable Investor, Principal and Interest (Refinance Only)(LVR
|AN EASY ONLINE APPLICATIONNO ONGOING FEES|
|FEATUREDFREE REDRAW FACILITY|
Smart Investor Home Loan (Principal and Interest) (LVR
- Option to add an offset for 0.10%
- No monthly or ongoing fees
- Unlimited redraws
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you.
*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of February 24, 2022. View disclaimer.
Photo by RODNAE Productions from Pexels
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers’ products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider’s web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.