With no further ado, we decided to investigate it, got a loan pre-approval and looked at the real estate magazines. Of course reading books on Property Investment like those of Jan Somers and Margaret Llomas only strengthened and further our knowledge.
For me, the first two things that you must do in order to be successful in property investing are to Take the Risks and Do it NOW.
As for my educational and professional background, I am a graduate of B.S. Economics majoring on Financial Management and with Marketing as my minor. I am a Financial Broker with Certificate IV qualifications and a Risk Insurance Adviser registered with ASIC. But I must say that the best teacher of all is experience. We have more than a dozen properties and I personally have sold at least 100 or more of which majority are in Queensland and a few in Victoria. Personally we have about 8 all over Qld as I have always believed in the Qld market considering the billions of dollars planned by the state government to put into its infrastructures and industries.
These have been going since 1999 when we bought our first investment property at Upper Coomera. I am also a great believer of the saying “put your money where your mouth is” so I am always the one to buy in an area that I believed to be of great potential in the future. In this booklet, my data is based on the Qld property sales that I have done from 1999 to the present covering the boom areas of Robina, Coomera, Mudgeeraba, Pacific Pines, North Lakes, Springfield Lakes and Caboolture. So let us say that this booklet is based on actual data and of course experiences not only our own but as well as those of my loyal clients who have been with me right from the start.
You cannot get anything better than that. I don’t want to bore you with pages and pages of readings so I will try to present each topic in the most condensed way. I hope you learn from it and that this may open your mind to the idea of creating wealth through property investing. I and my loyal clients are the living proof that you do not have to be a Packer or Murdoch to get into property investing.
Anybody with the will to seek financial freedom and the guts to take the risks and (a calculated one, mind you) Can Do It!
There must be some reasons why you do things and with property investing these are our reasons:
1. Leverage our Tax
How does it work? To give you an idea of how it applies to our income tax I have presented a negative assessment calculation based on how the Income Tax Variation Form is used and applied. For the illustration I have used an actual sample to show the effect on the income tax of a young client of mine who at 25 years of age bought her first investment property at Pacific Pines in the Gold Coast area May last year. Mind you, this young lady borrowed a personal loan of $30,000 from St George, used it for the 5% deposit and finance costs. The purchase price is $347,000 and finance cost was about $12,000 (including interests during construction period). The property is a 4 bedroom turnkey house. Turnkey is when everything else is included and all the tenants have to do is to turn the key of the house and live in it. All the External and Internal inclusions provided by our Builders are presented as well in this booklet so you can see why they are called Turnkey houses.
Before we ventured into property investing both me and my husband are paying between 35%-45% tax. Why wouldn’t you try something if you are paying that much tax. For this Financial Year 2007-2008 we are paying 1% and 0% respectively. Last year we were on 9% and 13% but with the addition of three properties in this year’s computation we put it down that low. In the last 5-6 years our taxes have been less than 15%, most of the time under 10%. So now, have I convinced you?
All the figures and numbers used in the calculations are very close to the actual income and expenses. Rental income is the actual rent that commenced last April. By the way these houses that I sell are house and land packages, settle the land first then proceed to construction. Through the years, we found out that the real benefit of doing it this way is that as soon as the property is completed, a gain of $20,000 to $50,000 is just a bonus in the making. How else could we have bought this much properties if not for the growth of the ones that we have acquired; or can we say, the Equity, that was used as deposit for the next property purchase. I will touch on this equity again further but first, let us investigate the negative gearing calculations on the next page.
| NEGATIVE GEARING ASSESSMENT |
| | | | | |
| PURCHASE PRICE | DEPOSIT | SET-UP COST | TOTAL COST | Interest |
| $347,000.00 | | $12,000.00 | $359,000.00 | $28,971.30 |
| | | | | |
| OUTGOINGS: | | | INCOME: | |
| Interest | $28,971.30 | | | |
| Rates | $1,200.00 | | Weekly Rent | $390.00 |
| Body Corporate | $0.00 | | Yearly Rent | $20,280.00 |
| Management | $1,300.00 | | Shortfall | $11,741.30 |
| Insurance | $550.00 | | | |
| Yearly Outgoings | $32,021.30 | | | |
| Weekly Outgoings | $615.79 | | OTHER TAX DEDUCTIONS: |
| | | | Depreciation: | $8,000.00 |
| | | | Loan Costs | $2,400.00 |
| | | | Total | $22,141.30 |
| Tax Variation Calculation | | | |
| Salaries | Partner1 | Partner2 | | |
| | $45,000.00 | $0.00 | | |
| Less:Deductions | $22,141.30 | $0.00 | | |
| New Taxable Income | $22,858.70 | $0.00 | | |
| Current Tax | $8,850.00 | $0.00 | | |
| New Tax | $2,529.00 | $0.00 | | |
| Annual Tax Savings | $6,321.00 | $0.00 | | |
| Weekly Tax Savings | $121.56 | $0.00 | | |
| | | | | |
| YOUR WEEKLY INVESTMENT | | | |
| OUTGOINGS | RENT | TAX SAVINGS | INVESTMENT | |
| $615.79 | $390.00 | $121.56 | $104.24 | |
Analyzing the figures above the percentage contribution for each are as follows:
Client 17%
Tax man 20%
Tenant 63%
Client’s Income Tax Before Variation is 20%
Client’s Income Tax After Variation is 5.6%
So you see, the least contributor to the responsibilities attached to an investment property is the owner and yet he is the one to gain most in the end.
At the end of this booklet is a sample of the Income Tax Withholding Variation (ITWV) application form. This is the form that is completed and sent to the Australian Taxation Office (ATO) for the income tax rate assessment. A sample letter from the ATO is also attached which shows the new tax rate that will be applicable for the financial year. This letter is sent both to the employer and the investor client to be applied to the very next payment period. The ITWV form is done every year before the new financial year begins.
2. Leverage the Equity of our Home
In the example above, the young client of mine did not have her own house yet (still lives with the parents) so she took a personal loan for deposit and cost of her first investment property. For a lot of my clients however, being mortgagors and paying off their owner occupied home did not stop them in getting into property investing. You see, you do not need to own your house for you to buy your first investment property. If you have equity in your own home leverage it to create more houses and built your assets. I always say to my clients that an untouched equity in a home is like a mine that is waiting to be tapped. So why not use it.
To continue on with the example above, remember the $30K that my client owed St. George. Guess what? We applied for a line increase on the loan last April, about a month after it was rented and the property was valued by the bank for $400,000 and we were able to get $32,000 from the instant equity and paid off the St George loan. We knew that we can get that much as the Real Estate in the area appraised the property at $410K to $420K. And banks being conservative as they are value most properties $10K-$20K below market price. See how the growth in a land and house packages are as compared to purchasing an already established one. I reckon the wait for the house to be built is worth the exercise. We have proven it time and time again.Southeast Qld are as follows:
North Lakes (25 kms North of Brisbane)
Central Lakes in Caboolture
Springfield Lakes (Ipswich)
Caloundra (Sunshine Coast Region)
The following pages are information all about the Southeast Qld region and the above “Areas of Interests”. In order to strengthen my argument the following pages are presented for your perusal and analysis.
Appendix 1 - Tax Variation Form
Actual form use to apply for Tax Withholding Variation once the property is renting
Appendix 2 – Actual copy of ATO Letter as per the Tax Withholding Variation
Once the Tax Variation is assessed this letter is sent both to the employer and the investor client to be applied as the new tax rate.
Appendix 3 - Depreciation Report
This is an important document needed to legally claim depreciation expenses. This is done once the property is completed and report is good for 42 years.
Appendix 4 – Example of Lease Agreement
This document is raised between the property manager and the investor client when property is ready for letting.
Appendix 5 - Routine Inspection Report
Market & Rental Appraisals
Packages Costs
South East Queensland (SEQ) is Australias fastest growing region . . . and for good reason.
The ports, airports, roads and rail infrastructure provide world-class access to international markets in close proximity to the Asia Pacific region. Driving the growth is a progressive export-oriented focus by business, industry and local government authorities. The impressive and growing export movements through our distribution networks is testament to the areas desire to be a significant contributor to the global economy. SEQ have a multitude of world-class universities, technical colleges and schools in both urban and rural areas, which offer a constant supply of graduates and skilled workers. SEQs focus is on innovation and matching the relevant talent with industry demands.SEQ is also the most livable region in Australia.
At the heart of the region is Brisbane, the State capital, surrounded by a number of larger population centers such as the Gold Coast, Ipswich. Toowoomba, and the Sunshine Coast. The region has a unique landscape with expansive mountain ranger and hinterlands, Moreton Bay and Islands, extensive beaches, parks, bush and farmlands.
South East Queensland’s (SEQ) Competitive Strengths
Labour Force
- Companies choosing to locate in SEQ have a deep diverse and talented labour pool at their disposal.
- With increased migration to SEQ from other states and overseas, the largest portion of which are 25-39 years olds, the labour force is steadily growing.
Research Development and Education
- SEQ’s world class universities are recognized for leading-edge research and their high quality of graduates. Major internationally recognized campuses include:
- University of Queensland (UQ)
- Queensland University of Technology
- Griffith University
- Bond University
- Many of the universities are home to Australia’s Cooperative Research Centres, which have a commercial focus in partnership with the private sector.
- UQ attracts the highest AU dollar value of research funding of any university in Australia.
- Technical and Further Education Colleges are also situated in SEQ.
- SEQ is at the forefront of medical research with its institutions leading the way in the fields of life sciences and health care including:
- The Institute of Health and Biomedical innovation and the Centre for Molecular Biotechnology, Queensland University of Technology.
- Australia Institute for Bioengineering and Nanotechnology and the Institute for Molecular Bioscience, University of Queensland
- The Queensland Institute of Medical Research (including the Clive
Berghofer Cancer Research Centre), Royal Brisbane Hospital
- SEQ boasts expertise in information and communication technology, e-security, computer games development and business software and development.
Infrastructure
The SEQ region has a wealth of world class infrastructure assets underpinning its vibrant economy with massive new infrastructure projects in the pipeline.
Priority SEQ infrastructure
The Queensland Government’s SEQ Infrastructure Plan and Program 2006-26 identifies $66 billion in priority infrastructure development over the next 20 years.
Key projects include:
- $28 billion for regional roads and public transport
- $5 billion for water projects
- $5 billion in social and community infrastructure, including schools and health facilities
- $4 billion in energy networks
The Infrastructure Plan is integral to ensuring a sustainable future for the region.
Port of Brisbane
The Port of Brisbane is the fastest growing port in Australia. This growth can be largely credited to:
- Proximity to Asian and other international markets
- Focus on providing efficient transport networks and logistics options
International and domestic air access
Three major passenger airports service the region:
- The fastest growing airport in Australia with exceptional capacity to expand
- 16kms from Brisbane City centre
- 24 hour, seven day a week, curfew free operation
- Gold Coast Airport:
- Just over one hour’s drive south from Brisbane with domestic and international access
- Sunshine Coast Airport:
- One hour and twenty minutes drive north from Brisbane with services predominantly to Sydney and Melbourne
Archerfield Airport is a centre for general aviation activities servicing SEQ.
South East Queensland Fast Facts
- SEQ is the fastest growing region in Australia and the second fastest in the western world behind Phoenix, Arizona.
- In 2006, 2.7 million people called SEQ home. This is projected to reach 3.7 million by 2026.
- It is predicted that an extra 575,000 new dwellings will be required over the next 20 years to support the population growth.
- The projected population increase in SEQ over the next 20 years is expected to create the demand for 425,000 new jobs by the year 2026.
- The region features world class transportation and logistical infrastructure including the Brisbane Airport, Port of Brisbane, Gold Coast Airport and the Australia Trade Coast ( a massive 8,000 ha multi-industry export focused precinct) and significant road and rail ‘feeder networks’.
- There are numerous world-class universities and other public and private education and technical institutions in the urban and rural areas offering a constant supply of graduates and skilled workers.
- In 2003, Jones Lang LaSalle’s ‘World Winning Cities’ report identified that SEQ will be Australia’s fastest growing region over the next 10 years, benefiting from the “sun belt migration” and its status as a tourist destination of global significance. The report also identified SEQ as being one of the best placed regions in the world to offer advantages of environmental and social sustainability.
- SEQ is one of Australia’s major destinations for domestic and international visitors. Tourism in SEQ contributes over $3.7 billion to the local economy and employs around 61,000 people.
- SEQ beaches, marine environments and extensive natural features are world-class.
- SEQ has experienced high and sustained population growth since the 1980s, growing at an average of 55,000 persons each year between 1986 and 2004.
Investment and economic growth
- In 2004, the major industries in SEQ were business and property services; petroleum, coal, chemical and associated product manufacturing; and general construction of dwellings.
- Queensland recorded overall economic growth of 4 per cent in 2004-05, double the growth rate for the rest of Australia. This represented the ninth consecutive year that the state’s economic growth has exceeded that of the rest of Australia.
- Business investment in Queensland has risen strongly since early 2001 driven by building and growth in the international economy.
Springfield Lakes Ipswich City
Population: 14,000
- 1 hour’s drive from Brisbane and the Gold and Sunshine Coast
- Abundance of fully serviced industrial land located on key transport networks
www.ipswich.qld.gov.au
Pacific PinesCoomera Gold Coast City
Population: 482,000
- Globally recognized destination for business and tourism- Australia’s innovation city
- Skilled, educated, diverse workforce with multilingual capacity
www.goldcoastcity.com.au/business
Bella Vista Caloundra City
Population: 89,000
- Cultural and creative industries with sport, leisure and lifestyle advantages
- Health, well-being, tourism and a ‘knowledge’ economy
www.caloundra.qld.gov.au
Central Lakes Caboolture Shire
Population: 135,000
- Access to transport networks, regional markets and skilled workforce
- Within 50 minutes of Brisbane CBD, Airport and Port with a coastal and rural lifestyle
www.caboolture.qld.gov.au
North Lakes Pine Rivers Shire
Population: 144,000
- High population growth, strong property market and manufacturing sector
- Highly skilled and educated workforce
www.pinerivers.qld.gov.au
