Owning Property Archives - Page 3 of 3 - Berwick Mortgage Broker

Jun 20

Explainer: Capital gains tax

If you buy and sell an investment property, you may be required to pay capital gains tax (CGT) on that sale. It’s important to understanding this tax when buying or selling a home.

What is CGT?

This is a tax that you are required to pay on any capital gain earned on the sale of an asset such as a property. CGT applies to any asset obtained after 19 August 1985.

What is a capital gain?

Put simply, a capital gain is made when a profit is made from the sale of an investment, so when the sale price exceeds the original purchase price. If you sell an investment property for less money than the purchase price, you will have made a capital loss. An industry expert can help you work out your net capital gain or loss.

Calculating CGT

It’s really quite simple. For the sale of a single investment, take the selling price of the property then subtract the amount you originally paid for it, along with any associated costs such as stamp duty and legal fees. The amount remaining will be your capital gain. If you make a loss rather than a gain, you will not be taxed.

You may be eligible for a 50 per cent reduction of the CGT payable if you purchased the property after 21 September 1999 and owned it for at least one year before selling, and the property was purchased by an individual, trust or complying superannuation entity.

Exemptions

While any investment properties sold will be subject to CGT, you do not have to pay this tax on every property you buy and sell. Your main place of residence is exempt, as long as you have never rented it out.

You also are not required to pay this tax at the highest marginal tax rate. Any capital gain obtained will be added to your taxable income and then taxed at the relative margin.

Find an MFAA Approved finance broker who can help you finance you investment property purchase.

This article is for information only; please seek advice from a tax adviser before making any decisions.

Owning Property by Alan Sarkissian

May 24

What to look for at an open house

There’s an old saying that you should never judge a book by its cover, and this is true for houses – after all, who would buy one having never seen more than the front door? Open inspections are opportunities to really flick through the pages, and here’s how to take full advantage.

Really use your senses

Sniff, peer, listen and feel as much as you can. Your nose might pick up a mouldy or musty smell that may mean damp. You might spy small or hidden cracks that could mean structural issues. That clattering sound when water is running? That can be a sign of serious plumbing problems.

Don’t be distracted by the beautiful bling

Anyone can invest money in pretty cushions and lamps to set off the house. Or bake some cookies just as the open inspection starts so the house smells cosy and homey. But when buying property, you’re buying the sausage not the sizzle, so look past the perfectly presented and lit lounge room to the size, shape and placement in the floorplan of the actual room, and imagine how you will use it.

Look up

That means checking the roof on the way in and looking at the ceilings in the rooms. Damp and leakage issues are costly and notoriously hard to fix. And once the rot sets in, it’s there to stay.

That kitchen and bathroom advice

It’s true what they say. If these two rooms aren’t how you would like them to be, are you prepared to live with it or spend the money required to transform them? According to Archicentre, kitchen renovations in Australia have an average cost of $10,608 to $31,722, provided that the room is in good condition and doesn’t need any significant structural renovation. Bathroom renovations will be upwards of $10,000, and probably a lot more. Check the Archicentre Cost Guide for an idea on what you’ll be spending.

Look at your surroundings

Who and what are your neighbours? Check out the location at different times of the week and day. It may sound excessive, but maybe the house is under a window-rattlingly low flight path only when the weather is bad, there’s a bar across the road that blasts out loud music in the early hours but is closed during the day when inspections are on, or there’s a factory down the road that when the wind blows a certain way sends nasty smells wafting. If you have kids, what are the local school like? What is the local crime rate?

Ask lots of questions

What are the utilities like gas, electricity and water costing the current residents? As the Property Institute says, a home with large windows seems bright and sunny, but it can also make for more drafts in winter and warmer rooms in the summer – both problems that make for higher utility costs. It’s also important to ask about previous repairs and renovations; if something goes wrong down the track it can be good to have a history.

Have a pre-purchase building and pest inspection

This may seem obvious but many houses are bought and sold without one. Home inspectors are trained to find flaws in a home that your untrained eye may never see as a problem, but may cost a lot to correct down the line. If it’s your dream home, you may choose to buy it even with structural or pest problems, but you’ll no doubt be able to negotiate on price.

Before you start looking at homes, talk to an MFAA accredited finance broker about how much money you can borrow and which type of loan suits you.

An MFAA Approved Finance Broker is much more than your average mortgage broker.

Owning Property by Alan Sarkissian

Apr 28

How to avoid paying too much for a home

Knowing what a property is worth is central to avoiding paying too much for it.

Set a benchmark

Comparing nearby properties that have sold recently is the best way to assess an acceptable price for the property you are looking at and provides a valuable bargaining tool when you are negotiating with a seller or agent. Make sure the properties are comparable, with a similar land size and number of bedrooms, for example, so you aren’t measuring apples against oranges.

“Your mortgage broker can give you a list of sales in the area and then you can drive around and look online to do a quick comparison. If you can find one or two similar properties then you can be sure of what the property is worth,” advises the finance broker.

Keep in mind current market conditions

The property market is always changing, so doing this research once and sitting on it for a few months will offer little help. Going to open homes and auctions regularly will give you insight into the current state of the market and how much certain properties are going for.

Expand your search

“My number one tip is to look at properties in the suburb next to the one that you want,” says the finance broker. “We find that first-home buyers in particular usually end up buying in the more affordable suburb next door to the one that they first wanted to buy in.”

Don’t exceed your financial capacity

Even if a lender approves you for a particular loan amount, it doesn’t mean you have to accept it – a higher loan amount means higher interest charges over the life of the loan, increasing the total cost of the property purchase, so only ever commit to a loan that you can afford alongside your current income and real expenditure. When calculating figures for the price of a home, ensure you also budget for maintenance and repair costs, as well as any other expertise you may require in the purchasing process.

Bring in the experts

“I would strongly recommend using a buyer’s agent as buying a home is one of the biggest financial decisions of your life and most people go in blind,” says the finance broker. “If cost is a concern, then I would suggest maybe using them only for part of the process that you need help with, such as the negotiation or bidding at an auction.”

Having an MFAA accredited finance broker onside is key to avoid overpaying for finance – they will search out the best loan for you and make sure it is one that you can afford.

Saving Money by Alan Sarkissian

Apr 25

Should you refinance for a better deal ?

Refinancing a loan can take advantage of lower interest rates to bring down the overall cost of servicing a loan. But it’s not always the best, or the only, option.

There are many different factors borrowers need to consider when thinking about refinancing a loan.

The first step is to speak to an expert about your needs and whether you can afford to service a different loan structure.

At this point, an MFAA Approved Credit Adviser will also need to find out about your existing loan, repayments and the structure of the facility.

The current value of the property is also taken into consideration, so the credit adviser will have access to current data that will indicate what the asset is worth.

Then credit advisers will have a look at the various loan options and figure out whether it’s worth it for the borrower to refinance. It’s not usually worth it if it’s only going to save a couple of hundred dollars a year, taking into consideration exit and application fees. But if it’s going to save upward of $1000 a year, refinancing might be a sensible approach.

Another key consideration is lenders’ mortgage insurance (LMI). If switching loans means you will need to pay LMI again, sometimes it’s not worth refinancing.

If you want to refinance just to lower lending costs, ask your credit adviser to negotiate with the bank for a lower rate.

If you do decide to go down the refinancing path, working with a credit adviser rather than going straight to a bank has advantages because the adviser has access to loan options from scores of different lenders.

Credit advisers can compare lots of different lenders and, if there is a better opportunity, they’re able to access it. Credit advisers are always working to give you great advice that’s in your best interests.

Saving Money by Alan Sarkissian

Apr 25

How to pay off your mortgage faster

When was the last time you looked closely at your loan, the progress you are making on paying it off and how it compares to others in the market? Analysing your mortgage could mean savings for you, as well as the opportunity to pay it off more quickly, invest in other assets or reach financial freedom sooner.

Make smaller payments, more often

To cut the size of your payments, make more of them. This could even see you pay off your loan faster, and therefore pay less interest overall.

If you pay your mortgage monthly, consider changing to fortnightly repayments. For example, if your mortgage equates to $2400 a month, cut this in half and pay $1200 each fortnight. As well as having more manageable payments to make, by the end of the year you will have paid off $31,200 rather than $28,800.

Pay just a little bit extra

A minimum repayment is just that – for most loans there is no reason you can’t pay more, whether here and there or regularly.

By rounding up to a full number or contributing an extra $100 or even $10, you’ll significantly reduce your mortgage. It may also be worth considering putting all bonuses, tax returns and gifts into your mortgage.

Don’t decrease repayments when interest rates fall

Even if your repayments are lowered when fees and interest rates decrease, it doesn’t mean that’s all you have to pay and, by keeping your repayments at the same level when interest rates are lower, you will pay down more of the principle with each payment and make speedy progress on your loan.

Offset it

If you can, use an offset account. A mortgage offset account is linked to your loan and the interest payable on the loan from month to month is calculated by deducting what is in your offset account from your current loan. For example, if your mortgage is $500,000 and your offset account has $10,000 in it, you will only pay interest on the remaining $490,000.

An offset account will save interest while still giving you access to your savings. It also means investors can preserve the tax deductibility of the mortgage.

Find a better deal

Ultimately, your mortgage needs to suit you and your circumstances, or you will wind up paying too much. If you think your current loan no longer matches your situation, speak to your finance broker. They will be able to find the right product for you, as well as negotiating appropriate rates on it.

Of course, it is important to make sure that your lender doesn’t charge fees for extra repayments, refinancing, or any other steps you take in an attempt to save on your loan. Your finance broker will be able to provide details and make sure you have a loan that lets you pay down your balance sooner.

If you don’t already have an MFAA Accredited Finance Broker, find one here – they have the expertise to make sure you aren’t paying too much and are in a loan that suits you.

Saving Money by Alan Sarkissian