Here you will find our 60 second property investment videos that give you a brief overview of the following topics:
Put simply, equity is the difference between the value of your home and how much you owe the bank against it. The great thing about equity is that you can use it as security with the bank and borrow against it to:
- Extend your home
- Buy a car
- Go on a holiday, or
- For any use the bank allows (after all it’s your money, but if you tell the bank it is for a risky venture, they’ll likely say no).
Most importantly, you can use the equity in your home to buy an investment property.
However, it’s important to be aware you can’t use all of your available equity. Since the bank is lending you money against the value of your home, they won’t lend you the full amount. You see, if house prices dip, they don’t want to have a security that is worth less than a customer owes.
Typically, banks will lend you 80% of the value of your home, minus the debt you still owe against it. However, it is possible to borrow more than 80% by taking out Lenders Mortgage Insurance (LMI).
Leverage, means buying a more expensive item than you could normally afford, by using borrowed funds.
The decision investors and first home buyers need to make is do you borrow at 80%, 90% or even 95% from the bank so you can buy a property sooner. Or even buy two properties instead of one.
Leverage can multiply your profits and losses. So while you stand to make a lot more money, you also risk losing more. Almost every property buyer uses leverage, but what you need to decide is, what is the right level of leverage for you? In other words, what level of risk are you comfortable with?
With most tax deductions we wait for the financial year to end, submit our tax return and wait patiently for our refund. That’s fine for most tax deductions, but for property investors it can create cash flow problems. That’s because the tax breaks are so big they can’t afford to wait until the end of the financial year.
For most investors it’s the tax breaks that make it affordable to own an investment property in the first place.
There are many outstanding tax breaks available on investment properties but depreciation is one of the best. It is available in two ways:
The first is ‘Capital works deductions’.
This is the cost of building the investment on the cost of building the investment property (i.e. the construction costs). This depreciation is available over 40 years, which is how long the tax department says a building lasts before it needs replacing.
Second, on the ‘fixtures and fittings’. This includes items such as light fittings, stove, carpets and fly screens. The tax department has a long list of items you can depreciate and how long they expect them to last. This tells you how much tax you can claim each year.