Q What should I be considering when buying an investment property?

A As half-a-million property investors around Australia will tell you, buying an investment property involves much forward planning, not unlike the purchase of a family home. But while the decision to buy a family home is usually very emotive, buying investment property should be based on a logical and calculated process.

Investors have to remember that where as a family home is a purchase from the heart an investment property is very much a purchase from the head.

To minimise the risk of getting stuck with a bad investment the REIQ and Affordable Property Investments recommends buyers do their homework and research the area they intend investing in. The REIQ recommends investors:

• Check local newspapers to understand market conditions, pricing etc
• Contact the Local Council and Main Roads Department
• Research the Body Corporate (if applicable)
• Seek financial advice
• Re-evaluate regularly

Q I can’t get to your office during business hours…

A One of our Consultants can come to your home, at a time that is suitable to you, to discuss the options available to you.

Q How much can I borrow?

A Each lender has their own lending policies and individual criteria and will therefore calculate the amount they will lend you differently. As a result some lenders may allow you to borrow more than others. Financial Services Consultant will be able to show you the maximum you can borrow from each lender. This will be determined by your income and the amount of equity you have in your home.

Q What documentation will I need?

A You will need to gather a number of documents to support your application. The exact documents you will need will depend on the type and purpose of your loan.

Documents you may need to present include:

• Completed and signed Application Form from the specific lender
• 100 Point Check FTRA Form per applicant, i.e. Drivers Licence, passport
• First Home Owners Grant application (if applicable)
• Copy of Contract of Sale (for purchase only)
• 6 months Loan Statements when refinancing a loan
• Rates Notice for existing property used to re-finance
• Evidence of income -

If you are working for an employer:

• Group Certificate, tax assessment or last year’s tax returns PLUS a current payslip or a letter of employment detailing employment conditions

If you are Self Employed:

• Last financial year tax return including tax assessment notice
• Previous Financial Year tax return including tax assessment notice

Lenders requirements may vary depending on the type of loan applied for e.g. Lowdoc Loans require less documentation than specified above. Affordable Property Investments will provide you with a list of things you will need at your consultation

Q Insurance. Do I need it

A All owners need to have home, contents and public liability insurance. There are many ways of combining these insurances and these can also include landlord’s insurance.

Make sure you choose a comprehensive level of cover that is suitable for landlords.

Affordable Property Investments can introduce you to professional who will advise you on the best policy for your needs

Q Should I seek financial advice?

A Seeking the advice of your accountant, financial adviser and bank is also a good tip. Each will assess your investment according to different criteria and together will provide a broad picture of the financial feasibility of your investment.

Even if you're a first time investor, property investment should be considered and managed as part of an investment portfolio and, unless you're a seasoned property investor, independent advice can prove invaluable.

Like any other investment, you need to consider how much you can invest, what the goal of the investment is and how long you want to hold the investment. For a good return on property, buyers should be looking towards the medium to long term (5 to 10 years).

Q Should I evaluate my property portfolio regularly?

A Another important factor to take into consideration is to remember, like any investment, property and the market conditions affecting it, must be monitored and re-evaluated on a regular basis.

While there are many avenues of investment in today's marketplace, a well-researched investment in property is still, and always will be, a stable and financially rewarding investment.

Not only does a buyer need to know what price they can expect to pay but they also need to be aware of what sort of return they can expect from their investment. Making sure you buy the right property makes it not only easier to rent out, but makes it easier to sell when the need arises.

Q What are the steps involved when Buying Real Estate?

A The REIQ and Affordable Property Investments recommend the following steps when buying property:

• Find out your borrowing capacity from banks or financial institutions.

• Decide on a location where is this best place to buy.

• Research property sales history the area and get information about median prices for the suburb. The REIQ publishes median sale prices for houses and units / townhouses by suburb in Queensland Property and Lifestyle, a consumer research publication available at www.propertylifestyle.com.au.

• Clarify inclusions (e.g. fixtures such as dishwasher - make sure everything is included in the Contract).

• Decide on the suitability of the property and the price to be offered. Consider conducting a property sales history search to find out what the property last sold for and when, how large the property is, the recent sale prices of surrounding properties Several providers sell this information, including the Department of Natural Resources, Mines and Energy (by phoning 07 3405 6900 or logging on to www.nrm.qld.gov.au/property), Australian Business Research www.abr.com.au, and CITEC at www.confirm.com.au. Each provider has their own rates and value-added services so shop around before buying.

• Get an independent valuation by a professional. Call the Australian Property Institute on 07 3832 3139 for a list of licensed valuers. Property prices are determined by the market. Valuations should not have a variance of more than 10%

• Obtain from the selling agent a PAMD Form 27c Disclosure to Buyer.

• Obtain from the selling agent the REIQ/Qld Law Society Contract of Sale with a PAMD Form 30c Warning Statement attached (which outlines your 5-business day cooling off period). Obtain legal advice on whether to consider waiving the cooling-off period.

• Note Special Conditions making the Contract subject to finance if required.

• Pay a deposit to the selling agent and receive a trust account receipt. Some buyers may choose to use deposit bonds which act as a substitute for the cash deposit between signing a contract and settlement of the property. At settlement the buyer is required to pay the full purchase price including the deposit. Acceptance of the bond in lieu of a cash deposit is at the discretion of the seller.

• Agent to submit the Contract of Sale to the seller.

• If they did not waive this right through a PAMD Form 32a Lawyers Certification a buyer may terminate the Contract under the cooling off provision within 5-business days of signing the Contract. Penalties do apply.

• You will need a solicitor to do your conveyancing. Solicitors can also help you with other services such as title searches. Solicitor's fees are negotiable - it is advisable to compare the fees being charged by a few different solicitors. Good referrals and past experience are valuable when choosing your legal representative. It is possible for a buyer to undertake these activities on their own. However, the REIQ strongly recommends using qualified solicitors for conveyancing. Contact the Queensland Law Society for further details about how to contact a qualified solicitor.

• During the conveyancing process your solicitor will make the following checks on the property:
• Applications and permits
• Details of development approval permits previously approved
• Notices, orders, requisitions or certificates issued in previous years
• Land liable to flooding
• Ownership and real property details
• Sewerage mains, maintenance holes and property connection locations
• Sewerage and septic tank installation/plan details
• Water main locations
• Existence of easements on the property.
  
• If there are no problems with the property and finance is approved, prepare to own your new home.

• Once the Contract is unconditional, keep in touch with your solicitor with regard to any issues approaching the settlement date.

• The REIQ Standard House and Land Contract has been prepared in accordance with relevant legislation and in conjunction with the Queensland Law Society . It is commonly used among real estate agents around Queensland and is available for purchase at Law Stationers, 279 Chapel Hill Road, Chapel Hill QLD 4069.

Q Do you have any special offers?

A Through using and building our client base we are creating buying power. Affordable Property Investments mission it to introduce you to the best professionals you can have on your team

Q What are the main legal issues associated with buying property?

A When buying a property there are several legal issues that must be handled such as:

The Contract of Sale; and Conveyancing.

The Contract of Sale

The contract of sale is presented to a buyer when an offer is made on a property for sale, and subsequently accepted by the seller. It is important at this stage that buyers seek independent legal advice - a licensed solicitor will be able to advise you on any conditions of the sale and/or take the appropriate steps to include conditions that you want made, for example, you may want to make the sale subject to pest and building inspections.

The REIQ Standard House and Land Contract have been prepared in coherence with the Property Agents and Motor Dealers Act 2000 and in conjunction with the Law Society of Queensland and is commonly used among real estate agents around Queensland. A sample copy of the REIQ Standard House and Land Contract is available for buyers who wish to familiarise themselves with a contract of sale before beginning their real estate transaction.

Q What is Depreciation

A Depreciation is the loss in value of an asset or building over a period of time due to wear and tear, physical deterioration and age. The cost of reproducing an income property can be recovered over the useful life of the asset, which is determined by the Australian Taxation Office. Depreciation is the secret to property investing.

Q when should I get a depreciation schedule?

A A tax depreciation schedule can be undertaken anytime after the date of the property settlement and before the lodgement of your next year’s tax return.

Q What is a depreciation Schedule?

A A Tax Depreciation Schedule is a report which outlines the depreciation allowances that an investor is entitled to. There are two types of deduction. The capital works deduction, Division 43. This flat rate of deduction applies to the building and any structural improvements. Depending on the date of construction, the rate applied is either 2.5% or 4.0%.

The second deduction is the plant and equipment allowances. Under Division 40, certain items of plant and equipment can be depreciated at an accelerated rate. Examples of such items include carpet, air conditioning, curtains, appliances, hot water units and a series of other items as listed by the tax office. We recommend the services of Caseco and Alison Casey.

The FAQ's have been provided with the kind permission of CASECO Quantity Surveyors
Caseco Quantity Surveyors is a wholly Australian owned and operated company providing an extensive range of services including:

• Tax Depreciation Schedules
• Building Insurance Valuations
• Sinking Fund Forecast Plans
• Maintenance Reserve Funds
• Capital Replacement Funds
  
  Visit the website for more information : www.caseco.com.au

Q Why do I need a depreciation schedule?

A A tax depreciation schedule reduces your tax liability on assessable income.

The tax depreciation schedule allows you to claim back money that would otherwise go to the tax man.

Q How much depreciation can I claim?

A How much tax depreciation you can claim will depend on the type of property you own and the fixtures, fittings, plant, equipment and furniture.

However you can typically expect that a new unit/townhouse will be in the order of $4000 to $6000 and a new detached house will be in the order of $3000 to $6000.

Q Leveraging or Gearing is a term often used in the financial world but what does it mean and how do you, or can you benefit from it?

A People often fear borrowing money as it creates a commitment that they feel uncomfortable with. This often stems from our parents philosophy i.e. "If you can't afford to pay cash for it you can't have it". Unfortunately this "philosophy" can be flawed. Their outlook on debt is still true today if you take on bad debt but can be very counter productive when it comes to "good debt".

Firstly the difference between good and bad debt;

Bad debt - is money borrowed for consumables that tend to depreciate such as cars, white goods, televisions etc.

Good debt - is money borrowed for appreciating, income earning assets such as property, shares etc.

As an example let's look at Joe and Bill who comes into $50,000 and both decide to invest it for 10 years for their future. However, they have very different Philosophies about risk and borrowing money. (We will assume for the exercise that interest rates remain the same for 10 years and the inflation rate remains steady at 3%. We will also ignore the compounding effect).

Joe decides safety first and places his money in a term deposit in the Bank at 6% interest for 10 years. After the full term Joe has earned $30,000 in interest less tax of $9,000 (based on 30% tax rate), leaving a profit $21,000. However we need to take into consideration the effects of inflation which mean that his initial $50,000 has reduced in value by $15,000. Total profit on his initial investment over 10 years is $6,000.

Bill decides to leverage his investment and purchases an investment property for $500,000 using his $50,000 as the deposit and borrowing $450,000 interest only. After rent and tax benefits the cost to him is $125 per week. Over 10 years his out of pocket expenses are $65,000 but the property, based on inflation has increased to $650,000. He sells it, recoups his initial $50,000, pays tax of $22,500 on the capital gain deducts his input ($65,000) and records a profit of $62,500. Ten times Joe's profit.

This simple example is designed to show how "good debt" can multiply your returns and how debt should play an important part of any investment strategy.