Author: casey

Many investors believe they must purchase a $1,000,000 property to do well in the market and reap the rewards. But is that really the case?

Investing in property isn’t sexy!

I think property investing sounds a lot sexier if you can purchase a $1,000,000 property opposed to a $500,000 property. Many investors can’t afford a $1,000,000 property from both a servicing and a deposit point of view. That doesn’t mean you can’t purchase a high-quality property that will achieve capital growth as well as providing a strong rental yield.

Below I have broken down the entry costs for both a $500,000 purchase as well as a $1,000,000 purchase. These calculations are based on Queensland, and this will vary state to state due to the various stamp duty calculations and charges. To keep things simple, we haven’t included Lenders Mortgage Insurance (LMI) in the calculations, however this would be applicable with a 10% deposit.

$500,000 Purchase		$1,000,000 purchase
10% Deposit	$50,000	10% Deposit	$100,000
Stamp Duty	$17,499	Stamp Duty	$41,449
Legal Costs	$2,000	Legal Costs	$2,000
Pest and Building	$500	Pest and Building	$500
Total	$69,999	Total	$143,949
Difference: $73,950

 

You would require an additional $73,950 for the deposit to purchase a $1,000,000 property. The important question to ask is “how long would it take you to save $73,950”? If you could save that amount in 1 year you would need to put away $1,422 a week. If you wanted to save that in 2 years you would need to put away $711 a week.

You need to save $50,000 plus a year!

We have seen markets move up to 40% in the last 12 months, not just on $1,000,000 properties but on $500,000 properties also. The areas we invest in for our clients will continue to grow in value, they can’t continue to grow at 40% each year, however if they grow at 10-15% a year, you most likely can’t save faster than the property growth. You would need to save $50,000 to $75,000 if a $500,000 property grows at 10-15%.

Therefore, it is important to get into the market when you can afford, and not wait to buy the sexy $1,000,000 property (or more expensive property). Get in, purchase at the price point you can afford, take advantage of the capital growth sooner and then you can leverage into a second property once the property has grown in value, and you have the available equity.

What do the rental yields and cashflow look like?

Another important part of the scenario is the rental yield on each of the asset classes. Typically, what we are seeing at the moment is that weekly rents aren’t increasing as fast as property prices. Don’t get me wrong, they are certainly increasing, however the 20% growth in the weekly rent over the last 12 months doesn’t compare to 25%, 30% or even the 40% growth in house prices.

What this means is that the $500,000 purchase will be generating a stronger rental yield for you than that of the $1,000,000 purchase. This means it will have less pressure on your cashflow to hold the property and have less impact on your serviceability. On a $500,000 purchase, the yield could be 4%-5% opposed to a $1,000,000 property with a rental yield of 3%-4%, being optimistic.

One more benefit is that if you purchased two $500,000 properties, opposed to a single $1,000,000 property, this is a way to mitigate your risk. Having two tenants across the $1,000,000 worth of assets and debt. Therefore, if a tenant moves out, you are still receiving rental income on the second property. Alternatively, if you purchase a single $1,000,000 property and the tenant moves out, you have no rental income until you find another tenant.

Your $500,000 purchase will be worth $1,000,000 in the future!

Remember that investing in property isn’t sexy, you don’t get rich overnight and property is a long-term game. You must be patient, trust the process and continue to build your assets and wealth over time. It is crucial to get into the market when you can, as you can take advantage of the growth which you can ultimately leverage against for further purchases. Selecting properties in the right areas will mean that one day in the future that $500,000 purchase will be worth $1,000,000.

Here at Taylored Property Wealth we specialize in helping investor clients purchase positive cashflow properties that are primed for growth. If you would like to know anymore information or you’re looking to purchase your next property and would like to discuss further, please reach out at info@tayloredpropertywealth.com.au.

 

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Selecting a city or market to invest in can be quite overwhelming for some. There are many factors to consider such as where to invest, what to invest in and whether you’ll make the right decision.

Today I want to discuss why we think Adelaide is going to be one of the top performing capital cities now and into the future. I’m going to list these factors and explain why we believe they will positively impact the Adelaide property market. I hope this will give you some clarity and understanding of why we feel Adelaide is a strong market to invest in.

At Taylored Property Wealth we believe Adelaide is currently a strong market to invest into and has huge potential for performance now and into the future.

Affordability

During the first half of the 18-year real estate cycle, Adelaide hasn’t performed as well as Sydney or Melbourne. Based on Phil Anderson’s predictions, we have just experienced the mid-cycle slow down and will approach the top of the cycle approximately 2026/2027. Adelaide, based on historical data, tends to perform better in the second half of the cycle. This is due to Adelaide being far more affordable than other major capitals cities at this point in the cycle, as Sydney and Melbourne historically perform better in the first half of the cycle.

As per Core Logic’s data, noted below are the average median dwelling values for Sydney, Melbourne, and Adelaide as of February 2022. This median figure shows the distinct difference between the three capital cities in discussion.

• Sydney: $1,116,219
• Melbourne: $799,756
• Adelaide: $593,833

People start to identify that there are more affordable areas to live, and we see migration to these more affordable lifestyles – Adelaide being one of these locations. Affordability then ties in closely with internal migration, internal migration and an increasing population generates more demand, more demand creates higher sales activity/volumes, which ultimately increases price growth.

Infrastructure Spending

Sydney and Melbourne saw massive infrastructure spending between the years of 2013 and 2017. During this time, we saw the Sydney and Melbourne markets achieving strong capital growth, whilst Brisbane and Adelaide were sitting flat, and the Perth and Darwin markets were going backwards.

Infrastructure spending is an important consideration as this creates more jobs, and it increases the desirability of an area. People want to live close to these areas and take advantage of the new infrastructure and facilities. It can also increase population growth and interstate migration as more people move to these areas due to the new jobs being created.

Adelaide has been experiencing large infrastructure spending and this is continuing. Below is a list of some of the large infrastructure spending projects that have been completed in recent years, currently underway or being completed in the future:

• Southern Expressway – 407m Completed in 2014.
• Darlington Upgrade Project – 754m project
• Torrens Road to Reiver Torrens Project – 896m project
• Regency Road to Pym Street Project – 354m project.
• Festival Tower – 1b project.
• Sofitel Adelaide – 150m project.
• Australian Bragg Centre – 3.6b project.
• Adelaide Women’s and Children’s Hospital – 1.95b project.
• Riverbank Arena – 700b project.

Vacancy Rates

Vacancy rates is a metric used to determine how many properties in a suburb or area are currently vacant without a tenant vs the total number of properties for rent in a suburb or area.

When vacancy rates are low and trending lower, this puts pressure on demand for rentals and what follows is an increase to rental yields which makes it less affordable for renters. Once rentals become less affordable, more people decide to purchase property which creates larger sales activity/volume, and this creates a higher demand and increases property prices.

At Taylored Property Wealth, the vacancy rates in all suburbs across Adelaide that we invest in are currently below 1% with a number of these suburbs sitting at 0.00%. Based on a 1% vacancy rate this means for every 100 properties in a suburb there is less than one property vacant. The current average for Adelaide in February 2022 as per SQM research is 0.4%, Brisbane at 0.9% compared to Sydney sitting at 2.0% and Melbourne sitting at 2.3%.

When looking at Vacancy rates always remember low vacancy rates lead to increased rental yields due to high demand, this causes rentals to become less affordable, renters then become purchasers and generate increased sales activity/volume and this is a forward indicator for capital growth.

Average Income

According to the ABS, as at November 2021 the average weekly salary of South Australia was $1,591 Victoria was $1,759 and New South Wales was $1,761. In the past, NSW and Victoria have had a higher average income. Over time these margins have narrowed with NSW $170 and Victoria $168 higher than that of South Australia.

This is important to note because Adelaide’s median price is lower than Sydney and Melbourne, yet the average income is still at $1,591. This means there is far more room left in terms of serviceability and showcases that Adelaide has far more opportunity and growth left before reaching its borrowing capacity ceiling. We know this because Sydney and Melbourne are great examples where the income levels have allowed prices to reach far higher than where Adelaide is sitting currently, yet the difference in the average weekly income is only approx. $170 difference.

This means that due to the affordability of Adelaide that we have touched on above, individuals aren’t using their maximum borrowing capacity to purchase properties in Adelaide.

Commsec State by State Report

Each quarter Commsec provide a State-by-State report analysing eight key indicators: economic growth, retail spending, equipment investment, unemployment, construction work done, population growth, housing finance and dwelling commencements.

For the month of January Commsec has rated South Australia second to Tasmania in being the strongest market based on the eight key indicators. Adelaide is changing dramatically, and this report is supporting that change from a data point of view.

Strong Rental Yields

Rental yields are another important factor to consider. Adelaide, as of February 2022 as per SQM research, has a rental yield across all houses of 3.8%, in comparison to Sydney sitting at 2.3% across all houses and Melbourne sitting at 2.4% across all houses. It’s important to note this isn’t inclusive of the unit/apartment sector as we invest in established areas buying houses on large pieces of land, as we know that land appreciates, opposed to the building which is the depreciating portion of the asset.

When investing, you can focus on buying blue chip areas where rental yields can be traditionally lower however the capital gains are larger, or you can focus on regional areas or outer ring suburbs where yields are traditionally higher and you still experience capital growth, building your asset base and overall wealth.

At Taylored Property Wealth we typically like to focus on a good balance of both capital gains and strong rental yields, as this allows you to build your wealth through capital gains and receiving strong yields allows the properties to pay for themselves, not costing you anything to hold. Creating wealth this way allows you to have more freedom and choices now and can also assist you with purchasing further properties.

At Taylored Property Wealth the average rental yields of the suburbs we focus on currently range from 4.5% up to 6%, attracting strong rental yields in conjunction with strong capital growth.

If you are looking to invest in the near future and you don’t know where to begin, where to look or what might be the most appropriate strategy for your situation and goals, please reach out to us at tayloredpropertywealth.com.au. We would love the opportunity to catch up, get to know you and what you’re looking to do and how we can work together as a team to help you achieve your property goals.

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By Casey Taylor | Buyers Agent

Natural disaster is an inevitable part of living in Australia, including Brisbane.

A beautiful, wonderful country however it can be a cruel country. Bushfires and flooding have impacted many different areas over the years. This impacts people’s lives through loss of life, loss of all belongings and their homes. With any terrible event or experience there are always opportunities and positives to focus on moving forward.

Today we are discussing the positives that will occur within these areas from a property stand-point. The properties directly affected will obviously not be sold for a period of time, premiums will increase, and some people will be reluctant to purchase these properties. As a Buyer’s Agency we always complete a flood assessment due diligence to ensure in the past in hasn’t been affected by flood.

Ultimately mitigating and reducing our risk that a property we purchase will be affected by flooding in the future. Due diligence is always so important when investing.

Local Economy Mini Boom

Typically, when an area or economy is affected by flooding it will experience a recovery effort in which government assists. This could be in the way of improved infrastructure moving forward or assistance with the homes affected and potential grants given. What will also occur is that individual property owners will begin to spend their insurance money to restore their property or build new homes.

Rental Shortage

There is currently a rental shortage with properties having vacancy rates under 1%. Many families that now can’t live in their homes for a period while repairs are completed, or new homes are built will now look for rental properties. With already extreme low supply levels and further demand for rentals increasing, this will ultimately put upwards pressure on rents. As a landlord you will experience higher yields and higher weekly rents.

Building Supply Shortage

We are currently also experiencing building supply shortages and hence building costs have been increasing over the last couple of years. This will mean that the cost to build a new home will increase furthermore, even though the property is not actually worth more. You are just paying more for the depreciating portion of the asset. This will see further demand for existing properties in existing suburbs.

Tradies with increased Income

In local economies due to the damage Tradies in all industry become busy, generating more work for longer periods of time. This means that Tradies are receiving increases to their income. Tradies with increased income will then spend more money in the local economy for other businesses to then benefit from.

Gentrification

Once owners start to receive their insurance money and renovate their homes, upgrade their homes, or build new homes gentrification occurs. Properties within the suburb become nicer visually and this is contagious as more homeowners begin to do the same.

Gentrification of an area brings further growth to an area as this creates more demand and desire for people to live in these areas.

Past impacts of floods and what followed

Moree is a town located in Northern New South Wales. It experienced a major flood in March of 2021. Moree now in the last 12 months has seen an increase in the median house value of 41%.

Gympie located in the Gympie region of Queensland experienced major floods in the consecutive years of 2011, 2012 and 2013 and in the last 3 years has experienced price growth of 43%.

Townsville QLD experienced flooding in addition to massive storms in February 2019, described as ‘one of the worst natural disasters to ever impact the region’. In 2021 many Townsville suburbs recorded price rises of above 20%.

It’s always important to really dig deep and look at the different factors that will be affected from any event that occurs. Flooding is a terrible situation for anyone who experiences this however with any negative situation there is always positives and opportunity to come from it.

If you have any questions with the information provided in todays blog, or you wanted to have a further discussion around property investing and how we can help you moving forward in your property investing journey please reach out to us at tayloredpropertywealth.com.au.

Need help buying in Brisbane?  CLICK HERE ➡️ Buyers Agent Brisbane

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For the month of February, Core Logic has reported a national increase in the home value index of 0.6% nationally. This marks the lowest monthly growth reading since October 2020. January 2022 saw 1.1% nationally and the peak over the last 17 months was March 2021 with 2.8%.

As per CoreLogic’s Director of Research Tim Lawless, all capital cities are now recording a trend of slowing dwelling value growth, some capital cities being far more significant than others.

The sharpest slow downs were experienced in Sydney with -0.1% growth, being Sydney’s first decline since September 2020, and Melbourne sitting flat at 0.00%.

The capital cities with the least amount of impact were Brisbane with 1.8% growth, Adelaide with 1.5% growth and Hobart with 1.2% growth. 5 of the 6 regional markets also saw gains that were more than 1.2%.

 

As per core logic February 2022.

Looking at the quarterly figures it is evident in the divide in capital cities highlighting that the Australian Property Market is not just one market. Brisbane in top spot with 7.2% growth for the quarter, Adelaide in second place with 6.4% growth for the quarter and Melbourne just 0.2% higher along with Sydney values at 0.8% higher over the last 3 months.

Nationally, the number of properties advertised over the 4 weeks to the 27^th of February was 13.3% lower then the same period 12 months ago. This showcases lower stock levels and lower supply on a macro level.

Brisbane and Adelaide are experiencing stock levels more than 20% lower now than 12 months ago and 40% lower than the 5-year average. This supply issue being a factor in continued growth across Brisbane and Adelaide.

Sydney and Melbourne are seeing stock levels begin to normalize. This can be attributed to newly listed properties coming to market along with softening demand due to affordability issues.

As per core logic February 2022.

Although housing values softened nationally, rental growth is holding firm with a stabilized national growth rate of 3.2%. Sydney sitting at 2.4% and Melbourne sitting at 2.8%, having the lowest yield profiles, however seeing a slight increase for the month.

Tim Lawless believes that we could be seeing the bottom of the cycle for rental yields. Over the last couple of years historic low rental yields were experienced in several capital cities. If rents continue to rise faster than housing values, which is a strong possibility for Sydney and Melbourne this will see an improvement in yields.

In Brisbane and Adelaide, where house values are growing fasting than rent prices, it’s likely we could see yields compress to record lows. Even with this trend occurring, the yields are far stronger than comparison cities of Sydney and Melbourne.

It’s important to keep in mind that although the trend of markets across capital cities has seen a decline in growth, this does not mean that all capital cities will not see further growth. It’s not sustainable to continue to do 30% in a 12-month period. This decline in growth may mean that we could see some markets continue to perform at 10% ,15% or even 20% in the following 12 months. If this is the case these amounts of growth are still great results.

Remember that the Australian property market is made up of many mi markets and is not one market as much as the main-stream media would like you to believe. Ensuring you select markets that are at the early stages of their growth cycle is key.

If you have any questions regarding this month’s property data or would like to ensure your next investment property is in the right market and performs in the way you need it to for your circumstances, please reach out to us at tayloredpropertywealth.com.au. We would love to catch up with you and work together as a team to help you secure your next investment property.

 

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There is currently a huge amount of negative sentiment around the looming interest rate rise, mainstream media are making the most noise around this. With everyone sick and tired of hearing about Covid they must get click bait and views another way and interest rate rises are an angle they are going with. Let’s remember this is the same main-stream media that predicted a 40% housing crash in 2018 that we are all still waiting for.

Main-stream media outlets will try and sell ice to an eskimos if it means they’ll get more views.

Today I want to break down what an interest rate rise will look like and what the real impact of this is. I’ll also be breaking down several positive indicators that the main-stream media aren’t focusing on because they are a bunch of pelicans that can’t get more views and create fear from these positives.

Let’s break down what the rate rise looks like in a dollar figure!!

As per finder.com.au the average variable interest rate as of March 2022 is 3.32%. If we calculate the monthly repayments on a $500,000 mortgage at 3.32% principal and interest repayments over 30 years this would be $2,196 per month.

If we are to use a 0.25% interest rate rise on $500,000 mortgage at 3.57% principal and interest repayments over 30 years the new monthly repayment would be $2,265. $69 a month…. $828 a year…..$16 a week. $16 a week is a very small amount when Australian’s have historically high savings off the back of the last two years of covid. I’m positive that anyone would be able to reduce their savings $16 if needed to service their mortgage.

Average rental yields increased in the last 12 months!!

Now let’s look at some positive sentiment that isn’t being spoken about from the mainstream media. As per SQM research as at the 4/3/2022 the capital city average weekly rent has increased 13.8% in the last 12 months. As at March 2022 the average weekly rent is $625 in comparison to 12 months ago in March 2021 where the average weekly rent was sitting at $551. On average this is an increase of $74 a week. Far outweighing a 0.25% rate increase based off a $500,000 mortgage!

Vacancy rates are at extreme lows and what this means!!

Currently vacancy rates are at extreme lows, this is a factor contributing towards the increase in average weekly rents. Due to the low vacancy rates, less properties are available for rent and in turn due to the low supply and high demand we are seeing an increase to the weekly rents. These low vacancy rates showcase that the weekly rents are going to increase moving forward, investors being able to increase their rental income further. This will further mitigate the risk with a rate rise.

At our Buyer’s Agency Taylored Property Wealth all suburbs that we invest in have vacancy rates below 1% with some suburbs having a vacancy rate of 0.00%.

Capital Growth Performance

In the last 12 months there has been a huge national boom with values rising 20, 30 or 40+% in a 12-month period. Selecting areas based on strong fundamentals will ensure you are selecting areas primed for growth, keep in mind this growth won’t be to the levels seen in the last 12 months as this isn’t sustainable growth.

As a borrower’s house value increases this is decreasing their loan to valuation ratio. Many lenders base their interest rate off the LVR and tier this interest rate. Therefore, as prices increase and the LVR decreases you can go back to your financial institution and have a rate review. You may be able to decrease your interest rate. For example, if your LVR was at 90% you may have had a rate of 3.00% and seeing a 20% increase your LVR now being at 70% the interest rate applicable can be lower at say 2.90%. You would contact your financial institution and ask for a rate review and provide evidence to support the house value through comparable properties. Please note this is a case-by-case basis and you need to have this conversation with your financial institution.

Across our personal portfolio we have been able to lower the rates across all properties reducing repayments, whilst achieving strong rental increases without doing anything to the properties.

It is extremely important to not listen to mainstream media, where they are focusing on just one element, there are many different elements to look at when it comes to property investing. If you are purchasing properties in areas that have strong fundamentals in conjunction with being a proactive investor there are ways to increase your passive income mitigating your risk. Mainstream media have been making noise for decades, don’t let them create fear and cause you not to act! Be one of the individuals who look back in 20 years and can say I’m glad that I purchased when I did.

If you have any questions in regards to the information discussed here today or you would like help with ensuring you get your next property investment purchase right, smashing it out of the park, please reach out to us at info@tayloredpropertywealth.com.au.

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Lender’s Mortgage Insurance is a one-off fee that a borrower must pay if you are borrowing 80% or more of the purchase cost of a property. This fee is payable on settlement and some lenders will allow you to add this onto your loan. This means that you will pay for this within your monthly repayments. This fee varies depending upon the loan balance as well as the percentage of funds you are ultimately borrowing.

Financial Institutions require the borrower to pay this fee in the event you don’t meet your minimum repayments and they are forced to sell the property. This mitigates the risk for the financial institution in the event they have to sell the property for less than the loan amount.

Many individuals will avoid paying this fee when borrowing funds as this is an added expense however avoiding paying this fee can be holding them back. It can be holding them back by not getting into the market sooner missing out on equity and paying more for the purchase price as well as holding them back leveraging into a larger asset base.

Saving the 20% and then purchasing

Let’s say that you are wanting to purchase a property for $500,000 and you are aiming to save a 20% deposit being $100,000 and you currently have $50,000 savings. How long will it take you to save $50,000? If you can save $500 a week you will save an additional $50,000 in just less than 2 years. Now, if you are purchasing in an area that is primed for growth, the $500,000 property could potentially achieve growth of 10-20% in that time. The same property would then be more expensive by the time you’ve saved the additional funds. Suddenly, the $500,000 purchase is now $550,000. You would have to pay $50,000 more and would have missed out on the $50,000 worth of growth/equity. If you had initially paid the lenders mortgage insurance, and let’s assume an LMI amount of $10,000 for this scenario, yes, it would have been an additional upfront cost, however, is an investment if you could have turned that $10,000 (paid in LMI), into $50,000 (growth) by getting into the market sooner.

We must change our mindset to think long term rather than short term.

“I will just buy one property, not two, to avoid lender’s mortgage insurance”

Another big opportunity is when you’re using equity in your owner-occupied home, for example, to purchase another investment property. Let’s say your loan is sitting at 70% loan to valuation ratio, your property is worth $1,000,000 and your loan is sitting at $700,000. Let’s assume that your borrowing capacity isn’t an issue.

It costs money to make money! You must take educated risks to reap the rewards!

Let’s say you access $100,000 of equity to bring your owner-occupied loan to 80%, avoid lenders mortgage insurance and aim to purchase a $500,000 property. You purchase a property primed for growth and it achieves 15% growth in the first year, meaning you’ve made $75,000 of capital gains.

Now let’s say that you accessed $200,000 of equity to purchase two $500,000 investment properties bringing your owner-occupied loan to 90% with lenders mortgage insurance being applied and let’s assume the LMI is $20,000 for the purpose of this scenario. You then purchase two $500,000 properties primed for growth and across the two properties achieve on average 15% growth, meaning in the first year you would achieve $150,000 of capital gains. Considering the LMI cost, you’re still up $130,000. Building wealth is about leveraging to hold the largest asset base possible and allowing time to let those assets grow.

These are two important ways that lender’s mortgage insurance is an investment that you must understand if you want to get your hands on the largest asset base possible. Remember that it costs money to make money. Paying additional purchase costs on the way into the deal can ultimately mean more gains and larger results long term.

If you have any questions on the information discussed in today’s blog, please reach out to us at info@tayloredpropertywealth.com.au and we would love the opportunity to discuss these with you.

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Today we are going to be discussing debt recycling and why this can be an important part of your strategy when investing in property. Debt recycling allows you to structure your portfolio in a tax effective way whilst increasing your asset base and building wealth.

What is debt recycling?

Debt recycling is taking non-tax-deductible debt (owner-occupied mortgage) and using this to purchase an investment property which is typically tax-deductible debt. For example, accessing $100,000 equity from your owner-occupied security to use as the deposit towards an investment property purchase, which is typically tax deductible.. You should then be able claim the interest on the investment property mortgage.

If you have built up a substantial amount of equity within your owner-occupied home, this is a wonderful position to be in. If your strategy to is to grow your property portfolio, you can put that equity to work, rather than leaving it sitting there inactive.

Building your wealth base

Borrowing against your owner-occupied mortgage allows you to leverage into an investment property purchase. This is purchasing an income producing asset and if you select an area primed for growth long term this asset is going to continue to build your wealth. If this property is also positive cashflow you can then use these excess funds to help pay down your non-deductible debt, being your owner-occupied mortgage.

Potential to save tax

Please note you should always speak with your accountant/advisor for your specific situation.

Risks to consider

It’s important to mitigate these risks as much as possible by leveraging professionals to help you make informed decisions. A Buyer’s Agent can help you purchase an appropriate property by targeting areas with strong rental yields, using timing to your advantage and selecting an area primed for growth over the long term.

Case Study

Let’s look at a case study to see how this works in action.

Let’s assume that we have an individual who has an owner-occupied mortgage of $500,000 and the value of the property is $1,000,000. This is a loan to valuation ratio of 50%. 500,000 / 1,000,000 x 100 = 50%. This individual has $100,000 savings which is sitting in an offset account offsetting the balance on the owner-occupied mortgage. Effectively paying interest on $400,000 being the loan balance minus the balance of the offset account.

Currently the individual can’t claim any of the expenses on the mortgage as this isn’t an income producing asset. The individual is going to purchase an investment property for $500,000 and access $100,000 of equity from the owner-occupied mortgage as the deposit for the investment property purchase. We aren’t going to consider purchasing costs to keep the exercise simple.

Now, effectively what the individual has done is borrowed 100% of the investment property purchase. This is important to note because the individual can claim all interest on 100% of the debt and expenses due to it being an income producing asset (investment property). Now looking at the investment property individually, it won’t be as positive cashflow as it could have been if a cash deposit was used for the purchase and borrowed, for example, 88% with a 12% deposit. However, this cash left in the offset account is extremely important to note.

The individual has now increased their asset base by $500,000. They now have an investment loan for $100,000 (deposit) secured by the owner-occupied debt and the existing owner-occupied mortgage of $500,000. The total debt secured by the Owner-Occupied mortgage being $600,000. Their loan to valuation ratio now being 60% on the owner-occupied property. They also have the investment property loan of $400,000. Their $100,000 cash remains in the offset account offsetting a portion of the owner-occupied mortgage, as this can’t be claimed on. They are still only paying interest on the $400,000 of non-tax-deductible debt.

Now if the individual did not structure it this way and they used their $100,000 cash deposit for the purchase they now wouldn’t be able to offset their owner-occupied mortgage by the $100,000. They would now be paying interest on the full balance being $500,000 (owner occupied debt) and not be able to claim this interest expense and the equity in their owner-occupied property would be sitting inactive.

In summation they have effectively moved $100,000 of debt from being non-tax-deductible to being tax deductible all while increasing their asset base by $500,000 and generating additional income. Using a Buyer’s Agent and ensuring a high-quality asset is selected , this will ensure longer term performance and that the property will increase in value as well as the rental income increasing long term. They have the flexibility of having access to the $100,000 in their offset account as a buffer or ultimately after using all available equity this cash could be used as another purchase deposit.

If we used interest only repayments on the owner-occupied mortgage with a rate of 3.00% this would be an annual saving of $3,000. Calculated as follows:

Interest only annual repayment on $500,000 being $15,000. Interest only annual repayments on $400,000 being $12,000. $15,000 minus $12,000 = $3,000.

This is an important strategy when investing to ensure you are building your assets creating a larger amount of wealth whilst doing this in the most tax effective way possible, ultimately creating more cashflow and increasing your tax return.

Disclaimer:  Contents within this email are of general nature only and should not be relied upon solely when making an investment decision. Taylored Property Wealth nor any of its directors, associates, staff, or associated companies bear any liability from any actions derived from the contents of this email. One should always seek third party investment information from relevant parties such as legal, finance, and accountancy enquiries.

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