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Investing in Property

If you’re looking to build your wealth and you’ve decided to invest in property, it pays to do your research. Not only do you need to find the right home loan, but you’ll also need the right investment strategy to suit your situation.

Finding the right home loan for your investment

Suncorp Bank has a great range of home loans with smart features to make investing in property easy. We offer fixed rate loans, variable rate loans and split loans, with options like interest only repayments (subject to credit approval) to help you manage your investment.

If you are already a homeowner

Your financial situation will most likely have changed since you took out your first home loan. You may have changed jobs, started your own business, bought a new car, and there may even be a few more mouths to feed at the dinner table. Depending on the age of your current home loan and the features you may have taken advantage of, you may have built some equity in your home too.

If this is your first property purchase

Entering the property market takes hard work and dedication. For handy tips on making your first property move, read our guide to buying your first home

What is equity?

Equity is the difference between the value of your current home and the amount still owing on it. So if your home is valued at $600,000, and you still owe $300,000 on your current home loan, your equity is $300,000.

Using equity to build your wealth

The greater the equity in your home the greater your share of your home’s value.  This increase may be thanks to an increase in the property market, your dedication to repaying your loan by making additional repayments or a combination of these things. Equity in your home is valuable as it’s building your wealth. It can also be a way to fund a deposit for a new investment property. If you do this with Suncorp Bank, you can borrow up to 90% of the property value (inclusive of Lenders Mortgage Insurance) you’re looking to invest in. But keep in mind; if you borrow more than 80% of the property’s value, you’ll have to pay Lenders Mortgage Insurance.

Enquire online to speak to someone from our experienced team of home loan specialists.

Investment strategies

To make the most of your property investment, consider a range of property investment strategies.  We’ve described some of the main concepts you’ll need to understand when investing in property below so that you can talk to your Financial Planner about what will suit you best.

Enquire online to speak to one of Suncorp’s expert Financial Planners.

Positive cash flow

You have a positive cash flow property when the income from your property (the rent) is more than the costs of holding the property (including things like the mortgage repayments and maintenance). 

Pros: Positive cash flow

  • Profit - the difference between the income produced by the property and the costs of holding the property
  • No out-of-pocket expenses
  • Positive cash flow properties can often be cheaper to buy, which means you pay less in stamp duty and taxes

Cons: Positive cash flow

  • You must pay tax on the profits you make
  • To find a positive cash flow property, you’ll probably have to look for properties in areas that provide less growth potential than a negative cash flow area.

Negative cash flow

You have a negative cash flow property when the expense of holding the property is more than the income made from the property. For example; if your annual rental income is $40,000, and the annual cost of holding the property (maintenance, mortgage etc.) is $50,000, you have a negative cash flow of $10,000.

Pros: Negative cash flow

  • You can claim any losses your property has made ($10,000 in the example above) to reduce your taxable income
  • If you choose wisely, your negative cash-flow property can produce more capital gains over the term of the loan than what you pay in out-of-pocket expenses
  • As you pay down the loan, and inflation increases rental prices, your investment may eventually turn into a positive cash flow investment.

Cons: Negative cash flow

  • You’ll need to cover the difference between what you make as income and what the costs are (in the example above, that would be $10,000 in one year)
  • It’s a more volatile strategy –interest rates may rise and increase your out-of-pocket expense

These pros and cons are always best discussed with a Financial Planner to understand how each strategy will help you. Suncorp Bank has a team of expert Financial Planners who can help. Enquire online.

Depreciation

Negative cash flow isn’t the only way you can get a break at tax time. Depreciation should also be a crucial part of your property investment strategy.  It could be the difference between a negative cash flow property and a negative cash flow property that generates an income for you.

What is depreciation?

Depreciation is the estimated decrease in an asset’s value over time. It’s an expense that you can add to your total expenses of holding the property, increasing your total tax deduction, therefore increasing your tax refund.

The Australian Tax Organisation (ATO) has lists on all the items you can claim depreciation on and for how long. For example, the free standing garden shed in the backyard can be claimed for 15 years, and the old carpet in the bedrooms can be claimed for 10 years.  

Money for nothing

If you have bought an older house that you plan to renovate before you rent out, be sure to tell your accountant about everything you remove. You can claim the dirty old carpet you want to rip out and the dusty old curtains you’ve removed, even though you’re discarding it.

How to claim depreciation

A qualified quantity surveyor should be able to inspect your home and prepare a report for your accountant.

If you don’t want to wait until tax time to claim depreciation, you can apply for PAYG Withholding Variation so that your employer applies an adjusted tax rate to you every payday. That means more money in your pocket on payday instead of having to wait until tax time.

Setting up your home loan with features that work for you

Suncorp Bank can help you expand your property portfolio. It’s time to talk to our friendly home loan specialists about setting up a home loan with the features that matter most to you.

Try out our repayment calculator today

Contact us to find out more

Book a visit with one of our friendly lenders

This information does not constitute tax advice. You should seek professional advice from your registered tax adviser as to how this product will impact your tax position. Any information contained in this document has been prepared without taking into account your particular objectives, financial situation or needs.  For that reason, before acting on the information, you should consider the appropriateness of the information having regard to your own objectives, financial situation and needs. Where the information relates to the acquisition, or possible acquisition, of a particular financial product, you should consider the Product Information Document before making any decision regarding the product.  Contact us for a copy.

Loans are issued by Suncorp-Metway Ltd ABN 66 010 831 722 Australian Credit Licence number 229882 (“Suncorp Bank”). To approved applicants only. Fees, charges, terms and conditions apply and are available on request

Lenders Mortgage Insurance

If your deposit is under 20% you’ll need to pay a Lenders’ Mortgage Insurance (LMI) premium. It’s a one-off cost that’s added to your loan amount, so you don’t have to pay anything upfront.  It’s important to talk to us about how much this will be – based on purchasing a home for $600,000 with a 5% deposit, it could be in excess of $20,000, depending on the state you live in.