Dean Soufan - London's Premier Real Estate Professional
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Property investment tips
The investment property market can be a minefield, so choosing an investment property has to be based on sound research, including price and location.
Keep your emotions out of the equation when shopping for an investment property. You're not looking for a property that you would necessarily live in yourself. Instead, try to keep the numbers at the forefront of your mind. Here are a few pointers to get you started in your research:
1. Treat it like a business
Remember, investing in property should be a business decision. You may choose to manage the property yourself, or choose to use an agent. Whatever path you take, it’s important to treat your investment like a business – banking, tax, maintenance etc. all need to be managed and recorded accurately. As with any business, it’s smart to build strong relationships with your solicitor, Adviser, broker or lender, and real estate agents.
2. Location, location, location
Location is one of the driving factors affecting the price of an investment property – and the rental returns you can expect from it.
To avoid buying an investment that could potentially run at a loss, make certain that there is a real demand for rental property in your chosen area. Research the market well and choose an area where rental demand outstrips supply.
Look for features that will be attractive to tenants. For instance, if considering an apartment, does it have a balcony? Does the unit you're interested in have an internal laundry? A double garage?
You may not find tenants immediately, or there may be periods when you are between tenancies. Make sure you allow for at least a two or three week period in each year when you won't receive any rental income.
4. Vacancy rates
To find tenants easily, invest in an area with few rental vacancies.
5. Negative gearing
If you’re borrowing money to buy an investment property, you'll be making loan repayments to the bank. If you’re renting the property out, you'll receive income from the property in the form of rent from your tenants.
If the interest part of your loan repayments (plus any other investment expenses) is more than the income you receive from rent, you can claim the difference as a tax deduction. This is known as ‘negative gearing’. It may reduce your taxable income and thus save you money on tax.
Put simply, negative gearing of property lets you (under current law) claim losses and tax deductions when you expect to make profits in the future. This means that if you negatively gear your property, these items can be 100 percent tax deductible (including mortgage repayments, property taxes, insurance, maintenance and rental fees).
As tax rules are subject to change, it is recommended that you discuss your personal taxation position with your Tax Adviser.
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