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Before building or selecting a property to invest in, it is important to determine what your investment ‘gearing’ strategy is. This is where an understanding of whether your home is positively geared (a cash-flow property strategy) or negatively geared (a capital growth property strategy) becomes significant.
For a better understanding of what these terms actually mean, we have compared the two strategies and outlined the benefits and drawbacks of each. Consider both carefully before purchasing your investment property!
Generally considered the safer, more conservative method, positive gearing occurs when the rental income on your investment property exceeds the cost of maintaining it, including loan repayments, interest, rates and maintenance fees. Positive gearing allows for short-term profit, as the extra cashflow works as an additional income stream. Positive gearing works in areas where rental demand is high (so investors can charge higher rent) and when interest rates are low.
Negative gearing occurs when the property runs at a loss – that is, the rental income is less than the costs of maintaining the home. Investors will need to use their own funds to make up the shortfall. Ideally, a negatively geared investment will grow in value over time, and the increased profit from selling it is expected to outweigh the initial financial losses. Negatively geared homes are often located near capital cities, which generally perform better and increase in value over a longer period.
Hotondo Homes have over 90 home designs, perfect for investors. Find out more at hotondo.com.au
*Hotondo Homes is not an authorised financial adviser so please seek professional advice for your investing enquiries
Know what you want or need in a loan and shop around. Fixed rates, variable rates, redraw capabilities and the length of the loan are all important factors. Make sure the structure of your loan is right for you straight off the mark – this is a long-term commitment.
Builder quotes can vary by thousands of dollars, so while it may be tempting to go with the cheapest option presented to you, it is important to realise that comparing quotes based purely on monetary value may in fact cost you more in the long run. This is because you are not always comparing apples with apples. Some builders may not provide you with all the expenses upfront, and there are many items that may be inclusive with one builder and non-inclusive with another. It is important to recognise what sort of variations may be affecting your quote including things like labour rates and the quality of the materials. Take the time to understand why your quotes may vary so you know what you are paying for.
Take the time to work out what you can really afford. Many people are excited to buy their first home, but forget the extra fees or underestimate the cost of actually owning one. Find out what kind of fees may be applicable to you including home insurance, stamp duty, moving costs, council rates and transfer fees. Also, be prepared for maintenance costs which will now fall back onto you.
Review your floor plan thoroughly. Work out where your power points and light switches are best positioned, consider the location of your bedrooms to noisy areas like the laundry or living room and always ensure you have plenty of storage.
READ MORE: AVOID COMMON FLOOR PLAN ISSUES
Increasing the standard ceiling height to just 2700mm can instantly offer a more spacious feeling in your home! Highly recommended by almost every builder, it is worth the initial extra cost.
Building a new home offers the opportunity to make massive savings by increasing your energy efficiency. This can be as simple as orientating your home correctly, installing eaves and double-glazed windows and ensuring your insulation is adequate, or you can look at more complex solutions such as solar power or energy-saving appliances. New homes offer new home technologies, so now is your chance to cut down on your energy bills and decrease your carbon footprint!
You can never have too much storage in your home! A clever builder should be able to help you find extra nooks and crannies where you can include additional storage space for your belongings. Finding room for extra storage is highly recommended and your builder will have some great tips on ways to avoid a cluttered home.
It can be very difficult to predict where the future will take you, however it doesn’t hurt to consider possibilities like future pets, children or family. Make sure the home you choose accommodates for future plans too, to get as much out of the home as possible.
Having finally built or found the perfect home, the last thing you want to think about is selling it. However, your home is an investment, and it is important to think about a time where you need to sell it. When searching for your home, consider what other typical home buyers may want and accommodate for this if possible. The location is also extremely important, and while your preferences should be paramount, thinking ahead is important too.
Are we overlooking something? Let us know in the comments below!
An offset account works in the same manner as your everyday banking account with one crucial difference – the balance is offset daily against money you owe on your loan, which reduces the amount of interest you pay.
A reduction in interest means you can pay off your loan quicker. For example, if you have $10,000 in an offset account and you have a $300,000 home loan, you will only pay interest on $290,000. Using this calculator you can see if the interest rate is at 5%, you could save $18,357.69 in interest and cut 1 year and 8 months off the length of a 30 year loan.
Because the money in your account is offset daily against your loan balance, the longer you have money in your account, the more you will save on interest.
There are a few questions that are often asked in relation to offset accounts.
Why not save the money in a high interest account instead?
In almost every case, you will never earn more interest in a savings account than what you are paying in interest on your home loan. Interest earned in a savings account also needs to be declared to the tax office, and tax must be paid on it. Your money will be working much harder for you in an offset account.
Why not put the money straight on the mortgage?
There are benefits to keeping money in your offset account rather than putting it straight on the mortgage. Funds in an offset account can be used like your everyday account. If you have an emergency, or you may be saving for a holiday, it is easy to withdraw funds as necessary. If you put it all on the mortgage, then find you need the money down the track, you may be hit with redraw fees or minimum redraw amounts.
Having a decent amount of savings in your offset account can cut years and thousands of dollars from your home loan. It also offers comfort in the knowledge that you can access these funds at any time, with no issue.
Always beware of extra transaction charges that may surround offset accounts though. It is best you do your research and speak directly to your bank regarding these accounts being used to pay your mortgage faster.
*Hotondo Homes are not financial experts. You should always seek independent legal advice when looking to reduce the amount of your mortgage with an offset account.
1. RESEARCH DIFFERENT LOANS
Know what you want or need in a loan and shop around. Fixed rates, variable rates, redraw capabilities and the length of the loan are all important factors. Make sure the structure of your loan is right for you straight off the mark – this is a long-term commitment!
2. BUDGET ACCURATELY
Take the time to work out what you can really afford. Many people are excited to buy their first home, but forget the extra fees or underestimate the cost of actually owning one. Find out what may be applicable to you including home insurance, stamp duty, moving costs, council rates and transfer fees. Also, be prepared for maintenance costs which will now fall back on you.
3. BANK APPROVAL
Try not to take out new credit while applying for your home loan. The bank assesses how much they can lend you based on your current financial situation and getting another loan during this time can put a strike against your name. Further to this, try not to change jobs while applying for a mortgage. Banks like to see a stable income. If you are thinking of moving jobs it is highly advised you avoid doing so until after your purchase.
4. THINK ABOUT THE FUTURE
It can be very difficult to predict where the future will take you, however it doesn’t hurt to consider possibilities like future children and pets – it is very likely your family situation will change while you’re living in the same house. An extra bedroom or a bigger backyard not only increases your resell value, but can help increase the length of time you live in your home. Make sure the home you choose accommodates for the future-you too!
5. CONSIDER SELLING YOUR HOME
Having finally built or found the perfect home, the last thing you want to think about is selling it. However, your home is an investment, and it is important to think about a time when you may need to sell it. When searching for your home, consider what other typical home buyers may want and accommodate for this if possible. The location is also extremely important, and while your preferences should be paramount, it does not hurt to think ahead.
For more information regarding your home, contact your local Hotondo Homes builder here.