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[ Legal Questions ]
A search of a certificate of Title shows that a caveat. What is it?
Answer: Caveats are notices or warnings that someone has a claim against the property. Claims or interests that are commonly found on a title are leases, options to purchase, and agreements for sale. These represent money or ownership interests in the property that should be dealt with before the property is transferred to a new owner. A lawyer often can arrange to have unacceptable caveats removed from the title before title is transferred.

[ Buying or Selling Property ]
Am I better off buying one property for $200,000 or two for $100,000?
Answer: Generally, it is better to buy more property at the cheaper price, but this depends entirely on the area in which you are buying. A $200,000 property in the inner city may be the bottom quarter of the market in that area, whereas a $200,000 property in a provincial town would probably be a mansion. In the former case, a $200,000 property would be OK but not so in the latter for a number of reasons. Firstly, a property in the lower end of the market has a higher rental yield, which results in a better cash flow. Secondly, the lower rent should attract more tenants. Thirdly, if you wish to sell on your retirement, there's more flexibility in selling one small property rather than one large one. And finally, if you're selling, property in the lower quarter of the market should attract other investors as well as first-home buyers, so there should be more potential purchasers.

[ Buying or Selling Property ]
Can I buy a property in partnership with a friend?
Answer:

You can buy a property with a friend if you wish. Tenants in Common ownership (on the Land Title Document) allows two or more individuals to own a fractional interest in a property.

Where two or more unrelated investors wish to buy a property tennants in common allow each investor to hold a separate and distinct share in the property.

[ Buying or Selling Property ]
I don't seem to have much spare money as it is now. How am I going to afford to buy an investment property?
Answer: If you have already made the commitment to pay for necessities first and luxuries last, then the only remaining stumbling block is more of a percieved problem than an actual problem. Too often, we think of an investment property in the same light as our first home. This being the case, we tend to see only the interest payment as creating an enormous burden. But your contribution to the interest bill, remember, is after the tenant and taxman have paid their share, and what's left may be as little as $80 in the first year - and it gets less over time as the rents increase. In addition, section 221D of the Taxation Act may help you to improve your initial cash flow though reduced PAYE tax instalments which means you don't have to wait up to two years for your tax refund.

[ About the Market | Buying or Selling Property ]
Is a holiday unit at the coast a good investment?
Answer:

It can be if you are careful to distinguish between an investment and a luxury. If purely for investment, the returns can be as good as permanent lettings if it is let for half the year at twice the normal rental.

This means that you use the unit when it is not let rather than letting it when you are not using it. If however, you want it solely for your own holidays thinking it will serve as an investment as well - think again.

None of the expenses (including interest) is tax deductible so it could be an expensive luxury. By the time you have created your wealth, you should well be able to afford a luxurious holiday unit that you can use at any time you so desire.

[ Buying or Selling Property ]
My wife isn't keen on the idea of buying an investment property in my name only. Is there any alternative?
Answer: There's not much point in putting a negatively geared property in joint names when the wife is not working, just in case of a marital break up. It is most tax advantageous to buy the property in the name of the highest-income earner. If you are at all worried about divorce, get a solicitor to draw up a written statement as to the equitable division of all your assets, regardless of title of ownership. This may only cost a small amount, compared to the thousands of dollars of potential tax savings.

[ Buying or Selling Property ]
Should I avoid timber houses because of the extra maintenance?
Answer:

As an investment, timber houses can be just as good as brick houses. Usually they are cheaper than a brick equivalent, which may compensate for their maintenance later.

Or if it is a very old house, it is quite possibly in a good position, being closer to the town centre - in which case, it may be more attractive to tenants or experience slightly greater capital growth that again compensates for the maintenance. But don't try to do all the maintenance youself if you don't enjoy it. Too many landlords try to do everything themselves, instead of using tradesmen.

[ About the Market ]
We seem to be in the middle of a recession. Is it still a good time to buy rental property?
Answer:

The herd mentality of the population is such that everyone buys when everyone else is buying and sells when everyone else is selling. (Statistics show that most investors bought in the midst of the last property boom when interest rates and property prices were at their highest!!)

Successful investors look on a downturn in the economy as a great time to buy and they then take all the necessary steps to ensure that they are able to hold long-term to reap the rewards of future recovery.

[ Buying or Selling Property ]
We were brought up to believe that we shouldn't borrow money. Were Mum and Dad wrong?
Answer:

Yes and no! The golden rule of borrowing money is to borrow for appreciating assets such as property, not for consumerables that depreciate in value.

Our parents were right in deterring us from borrowing money for cars etc, which ultimately are worthless. However, no one bothered to explain to them that debt, if used for appreciating assets such as property, is a most important tool in building wealth.

[ Buying or Selling Property ]
What if a consumption tax (Good and Services Tax - GST) is introduced and personal tax rates are cut. Will this affect property investment?
Answer:

Initially, the value of most commodities will rise causing an increase in property values. This is because both land development costs and building materials will increase, directly affecting property values.

Longer term, although the tax effectiveness will be marginally less, everything is relative and all other tax-advantaged investments will be similarly affected. If residential property outperforms all other investments now, then there is no reason to expect that this will be any different with a consumption tax.

[ Buying or Selling Property ]
What if negative gearing is abolished?
Answer:

The government has already made the mistake of abolishing the right to claim interest losses from rental property against other income. The turmoil in the rental market that occurred when investors took flight was so great, that it was reintroduced within two years. I believe the government is unlikely to make the same mistake twice.

But in the unlikely even that it does, I wouldn't expect the change to be retrospective and it would be a matter of adjusting the debt to balance the rental income.

[ Buying or Selling Property ]
Why hasn't my accountant told me everything about investing in property?
Answer:

When you go to the garage for petrol, does the mechanic come running out to suggest that your brakes need checking or that it's time for a tune up? We probably expect too much of accountants. They should be able to answer all of your questions competently, but don't expect them to be creative in guiding your wealth creation program.

Accountants are usually specialists in their area of expertise - accounting. They will expertly complete the tax forms for you after you have provided them with all the figures. They are usually not specialists in property investment and should never be relied on as such. However, there are some accountants who do specialise in property - and even have some rental property of their own.


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