Lesser known paths to property investment
Seasoned investors take ‘think outside the square’ approach
Mortgage Choice, Australia’s largest independently-owned mortgage broker, says there are many approaches to property investment that help borrowers maximise their cash flow and build wealth.
Company spokesperson Kristy Sheppard states, “Some lesser known paths to property investment can be quite rewarding once understood. Many Australians could be missing out on building their property portfolio simply because they are unaware of simple, successful solutions.”
“Making strategic property investments is half the battle. The subsequent steps seasoned investors make, thinking outside the square, sees them achieve goals faster and with less hassle.”
“Some of the more widely known approaches to property investment are taking out an interest only loan, buying with others as ‘tenants-in-common’ and tapping into your home equity. These can be great ways to free up cash flow, enabling more substantial contributions to a principal place of residence – if that’s your strategy – or to access cash flow for other investments.”
While these tactics, coupled with buying investment properties in the right place at the right time, have reaped financial rewards for many, savvy investors take their strategy to the next level. Some of the less traditional approaches to property investing are:
Varying your income tax – If you’re negatively geared, a good way to improve the immediate cash flow is to have your accountant submit an income tax variation form to your payroll office. This reduces the tax rate charged on your wages by estimating your total end of financial year (EOFY) tax position in advance, so rather than receiving a lump sum tax refund at the end of each year, you receive it evenly throughout. Care must be taken to estimate your EOFY tax position with great forethought: you may be stuck with a large tax debt if estimations are way off.
Line of credit with a ‘global’ limit – This is a line of credit home loan with a ‘global’ or ‘umbrella’ limit and several sub-accounts, meaning you have maximum access to equity to optimise your investment opportunities. The loan can be operated with multiple accounts under one ‘global limit’, eg. your mortgage, investment accounts, car loans and personal loans. You can make changes to and use the sub-accounts freely without having to re-apply each time for a different borrowing limit.
Build a secondary dwelling as an investment – A growing trend is building a second dwelling, (eg. granny flat), on the land held by either an owner-occupied or investment property. These secondary dwellings are used to generate extra cash flow via rental income and increase the property’s value when sold in future. Secondary dwellings also provide depreciation benefits. They must be council-approved, be fully self-contained, have their own access and be part of a formal tenancy agreement. Always research how similar properties in your area performed at time of re-sale and keep in mind that lending criteria for secondary dwellings varies from lender to lender.
Choose a loan tailored to your current needs – Depending on your finances, lifestyle and investment portfolio, there are a range of property loans for you to consider. With new products constantly entering a competitive market, and professional mortgage brokers such as Mortgage Choice providing free ‘home loan health checks’, your loan should always suit your current needs.
Visit a financial advisor and/or accountant – Discuss your complete financial position, objectives and short and long term goals with a professional who has a proven track record in managing a range of investment assets, to make sure your situation is improved by an investment property and that you can afford repayments without stretching the budget uncomfortably.