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Maximizing Your Financial Potential in Australia

The start of a new year is the perfect time to reflect on our financial goals and make resolutions to improve our financial situation. For Australians, understanding and optimizing their tax obligations is an essential aspect of maximizing their financial potential. In this blog post, we will explore some key tax resolutions that can help Australians navigate the tax landscape more effectively, minimize their tax liabilities, and ultimately achieve financial success with our tax tips and tricks.

Understanding Australian Tax System

Before diving into specific tax resolutions, it is crucial to have a solid understanding of the Australian tax system. Australia operates on a self-assessment tax system, where individuals are responsible for reporting their income and claiming deductions accurately. The Australian Taxation Office (ATO) is the governing body that oversees tax compliance and administers various tax laws. Familiarizing yourself with the different types of taxes in Australia, such as income tax, goods and services tax (GST), and capital gains tax (CGT), will set the foundation for effective tax planning.

Track Your Expenses and Receipts

One of the most effective ways to minimize your tax liabilities is by tracking your expenses and keeping receipts throughout the year. By maintaining detailed records of your deductible expenses, you can claim them when filing your tax return. Deductible expenses may include work-related expenses, self-education expenses, medical expenses, and charitable donations. Utilize technology tools like expense tracking apps or spreadsheets to simplify this process. Starting this habit early in the year will save you time and stress when tax season arrives.

Maximize Your Superannuation Contributions

Superannuation is a retirement savings scheme in Australia, and contributing to it can provide significant tax advantages. As part of your new year's tax resolutions, consider maximizing your superannuation contributions. Contribute up to the annual concessional contribution limit, which is currently $25,000 for individuals under the age of 67 (subject to change). By doing so, you can reduce your taxable income while simultaneously building your retirement nest egg.

Take Advantage of Tax Deductions

To optimize your tax position, it is vital to be aware of the various tax deductions you may be eligible for. Common deductions include work-related expenses (e.g., uniforms, home office expenses), investment property expenses (e.g., mortgage interest, repairs), and self-education expenses (e.g., courses, workshops). Ensure you keep accurate records and consult with a tax professional or refer to the ATO website to determine which deductions apply to your specific situation. By claiming all eligible deductions, you can reduce your taxable income and potentially receive a higher tax refund.

Stay Updated with Tax Law Changes

Tax laws and regulations are subject to change frequently. As part of your commitment to enhancing your financial knowledge, make it a resolution to stay updated with any tax law changes throughout the year. Subscribing to newsletters or following reputable financial news sources will keep you informed about any legislative updates or new tax benefits introduced by the government. Being proactive in understanding these changes will allow you to adapt your tax strategies accordingly.

Seek Professional Help When Needed

While it's essential to educate yourself about taxes, seeking professional help from a qualified accountant or tax advisor can be incredibly valuable. Tax professionals have in-depth knowledge of the Australian tax system and can provide personalized advice based on your unique circumstances. They can help you identify potential savings opportunities, ensure compliance with tax laws, and navigate complex tax matters. Consider engaging a trusted professional to assist you in achieving your financial goals in the coming year.

Plan for Capital Gains Tax (CGT)

Capital gains tax (CGT) is a tax levied on the profit made from selling assets such as real estate, shares, or collectibles. As part of your New Year's resolutions, take the time to review your investment portfolio and assess any potential CGT implications. By strategically planning asset sales or considering options like holding assets for more than 12 months (which may provide discounts on CGT), you can minimize the impact of this tax on your overall financial position.

Consider Income Splitting Strategies

For families or couples with multiple income earners, exploring income-splitting strategies can be beneficial from a tax perspective. By redistributing income earned between family members who fall into different tax brackets, you can potentially reduce the overall family tax liability. However, it is crucial to note that income splitting should be done within the boundaries of Australian tax laws. Consult with a taxation professional to understand the rules and limitations surrounding this strategy.

Review Your Salary Packaging Options

Salary packaging refers to an arrangement between an employer and an employee, allowing them to receive certain benefits or allowances as part of their remuneration package. These benefits can include items like cars, laptops, or even childcare subsidies. As part of your New Year's resolutions, review your salary packaging options and assess whether there are any additional benefits you can take advantage of that align with your lifestyle and financial goals. Salary packaging can result in significant tax savings if structured correctly.

Stay Organized for the Next Tax Season

Lastly, as you embark on a new year with fresh financial goals, commit to staying organized throughout the year for the next tax season. Maintain a dedicated folder or digital file where you store all relevant financial documents, receipts, and statements as they become available. Regularly update this folder to ensure all records are easily accessible when it is time to file your tax return. By adopting this habit, you will streamline the process and reduce stress when dealing with taxes.

Conclusion

As we welcome another year, let us embrace the opportunity to improve our financial well-being through strategic tax planning. By understanding the Australian tax system, tracking expenses diligently, maximizing superannuation contributions, leveraging deductions, staying informed about tax law changes, seeking professional help when needed, planning for CGT, considering income splitting strategies, reviewing salary packaging options, and staying organized throughout the year – we can all work towards maximizing our financial potential in Australia. Remember that each individual's financial situation is unique; therefore, consult with a qualified professional before implementing any specific strategies mentioned in this blog post. Here's to a successful year of achieving our financial goals!

Understanding the Recent Changes in First Home Buyer Choices.

Are you a first-time home buyer looking to enter the real estate market? If so, it's vital to understand the recent changes that have been made to the first home buyer assistance scheme choices. In this comprehensive blog post, we will delve into the various changes that have been implemented and discuss how they might impact you as a prospective homeowner. From updated eligibility criteria to revised government incentives, we will cover everything you need to know to make an informed decision. So, let's get started!

Section 1: Introduction to First Home Buyer Choices

The process of purchasing your first home can be overwhelming, especially with the plethora of choices available. However, it's essential to stay up-to-date with the recent changes in first-home buyer options. These changes are aimed at making homeownership more accessible and affordable for first-time buyers. Let's explore the recent changes in more detail.

Section 2: Revised Eligibility Criteria

One significant change in the first home buyer choices is the revised eligibility criteria. Previously, there were specific income thresholds and property value limits that determined whether an individual was eligible for certain incentives. However, these criteria have been modified to accommodate a wider range of buyers.

Now, individuals with higher incomes can also qualify for certain benefits, although they may receive reduced incentives. Additionally, the property value limits have been increased to cater to the rising real estate market. These changes aim to make homeownership more inclusive and help a broader range of individuals enter the market.

Section 3: Updated Government Incentives

Another crucial aspect of the recent changes in first-home buyer choices is the updated government incentives. Governments often introduce various schemes and grants to support first-time buyers. These incentives vary from region to region, so it's important to research the specific incentives available in your area.

Some common government incentives for first-home buyers include:

3.1 First Home Owner Grant (FHOG)

The First Home Owner Grant (FHOG) is a government scheme that provides a one-off grant to eligible first home buyers. The grant amount can vary depending on factors such as location and property value. It aims to assist buyers with the initial costs associated with purchasing a home, such as stamp duty or deposit.

3.2 Stamp Duty Concessions

Stamp duty is a significant expense when purchasing a property, particularly for first-time buyers. However, many governments offer stamp duty concessions or exemptions for first-home buyers. These concessions can significantly reduce the upfront costs associated with buying a home.

3.3 HomeBuilder Grant

The HomeBuilder Grant was introduced in response to the COVID-19 pandemic to stimulate the construction industry. This grant provides financial assistance to eligible individuals who are building or renovating their first home. It offers a substantial amount towards the overall cost of construction or renovation.

3.4 First Home Loan Deposit Scheme (FHLDS)

The First Home Loan Deposit Scheme (FHLDS) is designed to help first-time buyers enter the property market with a smaller deposit. Under this scheme, eligible buyers can secure a home loan with a deposit of as little as 5%, without needing to pay for lenders' mortgage insurance (LMI). This scheme aims to make homeownership more accessible for those struggling to save a large deposit.

Section 4: Changes in Lending Criteria

Apart from eligibility criteria and government incentives, there have also been changes in lending criteria for first-home buyers. These changes are influenced by factors such as economic conditions, market trends, and regulatory guidelines.

Lenders now have stricter criteria when assessing mortgage applications, including stricter scrutiny of income, expenses, and credit history. While this may make it slightly more challenging for some first-time buyers to secure a loan, it ultimately promotes responsible lending practices and helps protect borrowers from excessive debt.

Section 5: Impact on Property Market

The recent changes in first-home buyer choices have had a significant impact on the property market. These changes aim to stimulate demand and increase housing affordability for first-time buyers. As a result, we have witnessed increased activity in the entry-level housing market.

The increased demand from first-home buyers has led to a surge in property prices in some areas. However, it's important to note that these changes have also sparked increased construction activity, leading to a wider range of affordable housing options entering the market.

Section 6: Tips for First Home Buyers

If you're a first-time home buyer navigating through these changes, here are some useful tips to help you make informed decisions:

  1. Research Government Incentives: Familiarize yourself with the government incentives available in your area and understand their eligibility criteria and application process.
  2. Seek Professional Advice: Consult with mortgage brokers or financial advisors who specialize in helping first-time buyers. They can guide you through the process and help you understand your options.
  3. Budget Wisely: Determine your budget by considering factors such as your income, expenses, and potential loan repayments. This will help you avoid overstretching your finances.
  4. Save for a Deposit: Start saving for a deposit early on to increase your chances of securing a favorable loan and reduce your reliance on lenders' mortgage insurance.
  5. Attend First Home Buyer Seminars: Many organizations conduct seminars or workshops specifically tailored for first home buyers. These events provide valuable insights and advice from industry experts.
  6. Explore Different Financing Options: Research different loan products and lenders to find the best financing option that suits your needs. Compare interest rates, repayment terms, and additional fees before making a decision.
  7. Consider Long-term Goals: While it's exciting to enter the property market as a first-time buyer, it's crucial to consider your long-term goals. Think about factors such as location, property type, and potential for growth before making a purchase.

In conclusion, understanding the recent changes in first-home buyer choices is essential for anyone looking to purchase their first home. From revised eligibility criteria to updated government incentives, these changes have made homeownership more accessible and affordable for first-time buyers.

While navigating through these changes may seem daunting at times, with proper research and guidance, you can make informed decisions that align with your financial goals. Remember to stay updated on any further changes and consult professionals who can provide valuable advice throughout the process.

By staying informed and taking advantage of available resources, you can embark on your journey toward homeownership with confidence and excitement! Please speak to us today.

Capital Gains Tax

Are you wondering how much capital gains tax you'll have to pay on a $100,000 investment? Understanding your tax obligations can be daunting, but it's essential to stay informed to avoid any surprises come tax season. In this article, we'll break down the complexities of capital gains tax and provide you with a clear understanding of what you can expect to pay.

What is capital gains tax?

Capital gains tax is a tax levied on the profits realized from the sale of certain assets, such as stocks, bonds, real estate, or other investments. When you sell an asset for more than its original purchase price, you have a capital gain. This gain is subject to taxation by the government.

Capital gains tax is categorized into two types: short-term and long-term. Short-term capital gains tax is applied to assets held for less than a year, while long-term capital gains tax is applied to assets held for more than a year. The rates at which these taxes are applied vary depending on your income and the type of asset.

Understanding capital gains

To calculate capital gains tax, it's important to understand how gains are determined. The gain is calculated by subtracting the purchase price (also known as the cost basis) from the selling price of the asset. For example, if you bought a stock for $50,000 and sold it for $100,000, your gain would be $50,000.

It's worth noting that not all assets are subject to capital gains tax. Certain assets, such as your primary residence, may be excluded from taxation, subject to certain conditions. Additionally, if you sell an asset at a loss, you may be able to offset your capital gains with those losses, reducing your overall tax liability.

Capital gains tax rates

The rates at which capital gains are taxed vary depending on your income level and the type of asset sold. In general, capital gains tax rates are lower than ordinary income tax rates. For individuals in the lower income brackets, the tax rate on long-term capital gains maybe 0%. However, for high-income individuals, the maximum tax rate on long-term capital gains is 20%.

Short-term capital gains, on the other hand, are taxed at the same rate as ordinary income. This means that if you sell an asset you've held for less than a year, your gains will be taxed at the same rate as your regular income. It's important to consider the tax implications when deciding whether to hold onto an asset for a longer period to qualify for the lower long-term capital gains tax rates.

Factors that affect capital gains tax

Several factors can affect the amount of capital gains tax you'll pay on a $100,000 investment. One of the key factors is your tax bracket. As mentioned earlier, individuals in higher income brackets may face higher tax rates on their capital gains.

Another factor to consider is the length of time you held the asset. If you held the asset for more than a year, you may qualify for the lower long-term capital gains tax rates. However, if you held the asset for less than a year, you'll be subject to the higher short-term capital gains tax rates.

Additionally, the type of asset you're selling can also impact your capital gains tax liability. Different assets may be subject to different tax rates, so it's important to understand the tax implications specific to the type of investment you're making.

Calculating capital gains tax on $100,000

Now, let's calculate the capital gains tax on your $100,000 investment. To do this, we'll need to consider the factors mentioned earlier - the tax bracket, the length of time the asset was held, and the type of asset.

Let's assume you're in the 20% tax bracket for long-term capital gains and you've held the asset for more than a year. In this case, you would be subject to a 20% tax rate on your capital gains. If your gain on the $100,000 investment is $50,000, your capital gains tax would be $10,000 (20% of $50,000).

However, if you held the asset for less than a year and are subject to higher short-term capital gains tax rates, the tax calculation would be different. Let's assume you're in the 35% tax bracket for short-term capital gains. In this case, your capital gains tax on the same $50,000 gain would be $17,500 (35% of $50,000).

Strategies to minimize capital gains tax

While paying taxes is a necessary part of investing, there are strategies you can employ to minimize your capital gains tax liability. One such strategy is tax-loss harvesting, where you sell investments that have declined in value to offset your capital gains.

By strategically selling assets at a loss, you can reduce your overall tax liability. However, it's important to be aware of the wash-sale rule, which prohibits you from repurchasing the same or substantially identical asset within 30 days of selling it at a loss. This rule is in place to prevent investors from claiming artificial losses for tax purposes.

Another strategy is to contribute to tax-advantaged accounts, such as individual retirement accounts (IRAs) or 401(k) plans. By maxing out your contributions to these accounts, you can defer taxes on your investment gains until you withdraw the funds in retirement, potentially reducing your current tax liability.

Capital gains tax exemptions and deductions

As mentioned earlier, certain assets may be exempt from capital gains tax. One of the most common examples is the sale of your primary residence. If you meet certain criteria, you may be eligible for an exclusion of up to $250,000 (or $500,000 for married couples) of capital gains from the sale of your home.

Additionally, there are deductions available that can reduce your capital gains tax liability. For example, if you made improvements to an investment property before selling it, you may be able to deduct the cost of those improvements from your capital gains. It's important to consult with a tax professional to ensure you take advantage of any applicable exemptions and deductions.

Reporting and filing capital gains tax

When it comes to reporting and filing capital gains tax, it's crucial to stay organized and keep accurate records of your investments. You'll need to report your capital gains on your tax return, using Form 8949 and Schedule D.

If you received a Form 1099-B from your broker or financial institution, it will provide the necessary information to report your capital gains. However, if you didn't receive a Form 1099-B, you'll need to gather the relevant details, such as the purchase and sale dates, the cost basis, and the selling price, to accurately report your gains.

Seeking professional help for capital gains tax

Navigating the complexities of capital gains tax can be challenging, especially if you have significant investments or complicated financial situations. In such cases, it may be wise to seek the assistance of a tax professional or financial advisor who specializes in taxation.

A qualified professional can help you understand your specific tax obligations, identify strategies to minimize your tax liability and ensure you're in compliance with the tax laws. They can also provide guidance on reporting and filing your capital gains tax, helping you avoid any costly mistakes.

Conclusion

Understanding how much capital gains tax you'll pay on a $100,000 investment is crucial for making informed financial decisions. By considering factors such as your tax bracket, the length of time you held the asset, and the type of investment, you can accurately calculate your tax liability.

Remember, there are strategies available to minimize your capital gains tax, such as tax-loss harvesting and contributing to tax-advantaged accounts. Additionally, exemptions and deductions can further reduce your tax liability. However, it's important to consult with a tax professional to ensure you're taking advantage of all available options and staying compliant with the tax laws.

By staying informed and seeking professional help when needed, you can navigate the world of capital gains tax with confidence and maximize your returns. So, take the time to understand your tax obligations and make the most of your investments.

Investing in real estate can be a lucrative venture, and one of the many advantages is the ability to take advantage of various tax deductions. Understanding the ins and outs of investment property tax deductions is essential, as it can help you maximize your returns and reduce your tax liability. In this article, we will delve into the basics of investment property taxation, explore common tax deductions for investment properties, discuss strategies to maximize your deductions, navigate tax laws specific to investment properties, and explain the importance of working with tax professionals in this regard. Additionally, we will touch on long-term tax planning and the impact of deductions on your property value.

Understanding Investment Property Tax Deductions

Basics of Investment Property Taxation

Before delving into specific deductions, it's crucial to understand the basics of investment property taxation. Rental income from your investment property is typically considered taxable. This income will be reported on your year-end taxes. The good news is that you can deduct certain expenses related to your investment property, lowering your overall taxable income.

When it comes to investment properties, the tax rules are complex and may vary depending on factors like property type, usage, and location. Familiarizing yourself with these rules will help ensure you take full advantage of the deductions available to you.

Investment property taxation is governed by a combination of federal, state, and local laws. It's important to consult with a qualified tax professional who can guide you through the intricacies of these laws and help you navigate the tax landscape effectively.

What are the Common Tax Deductions for Investment Properties?

When it comes to investment properties, there are several common tax deductions that property owners can claim. Taking advantage of these deductions can significantly impact your overall tax liability:

It's important to keep detailed records of all your expenses related to your investment property at all times. Always consult with a tax professional to ensure you are taking advantage of all the deductions available to you. By doing so, you can minimize your tax liability and maximize the return on your investment property.

Strategies to Maximize Tax Deductions

When it comes to maximizing tax deductions, property owners have several strategies at their disposal. By taking advantage of these deductions, you can potentially reduce your tax liability and keep more money in your pocket. Let's explore some of the key strategies that can help you maximize your tax deductions.

Rental Property Depreciation

Depreciation is a significant deduction for property owners, allowing you to deduct a portion of the property's value over time. This deduction recognizes the wear and tear that occurs on your investment property. The depreciation schedule will allow you to claim a total amount over time for rental expenses. IDeprecation schedules are created by specialists in the industry.

Consulting with a tax professional familiar with real estate investments can ensure you are maximizing this deduction. A tax advisor will navigate the complex rules and regulations surrounding depreciation. This way you are taking full advantage of this valuable tax benefit.

Interest Expense Deductions

Interest expense deductions can be a significant deduction for property owners with mortgages on their investment properties. If you have borrowed money to finance the purchase, likely 100% will be tax deductible.

Ensuring that you keep accurate records of your interest payments and properly report them on your tax return is crucial. By doing so, you can maximize your deduction and reduce your taxable income. Additionally, if you have taken out a home equity loan to finance improvements on your investment property, the interest on that loan may also be deductible.

Repair and Maintenance Deductions

What is Repairs and Maintenance on Rental Properties?

Repairs and maintenance expenses are generally deductible for investment properties. As a property owner, you understand the importance of keeping your rental property in good condition. The good news is that you can deduct the expenses incurred for repairs and maintenance.

It's important to differentiate between repairs and improvements. Improvements may need to be capitalized and depreciated over time, while repairs can be deducted in the current tax year. Keeping detailed records of expenses related to repairs and maintenance is essential for proper documentation.

By properly categorizing your expenses and keeping accurate records, you can ensure that you are maximizing your deductions and minimizing your tax liability. It's always a good idea to consult with a tax professional who specializes in real estate investments to ensure that you are taking advantage of all available deductions.

Navigating Tax Laws for Investment Properties

IRS Guidelines for Investment Properties

The Internal Revenue Service (IRS) provides specific guidelines for reporting rental income and claiming deductions on investment properties. Familiarizing yourself with these guidelines is important to ensure compliance and accuracy in your tax reporting. The IRS website offers a wealth of resources and publications that will help you understand these guidelines better.

State-Specific Tax Laws

In addition to federal tax laws, each state may have its tax laws and regulations regarding investment properties. It's crucial to research and understand the tax laws specific to your state, as they may vary from federal laws. Consulting with a tax advisor will have knowledge in the investments of real estate will guide you with the different taxes payable.

Benefits of Hiring a Tax Advisor

When it comes to maximizing your investment property tax deductions, working with a qualified tax advisor can be invaluable. Tax advisors specialize in real estate taxation and can help you navigate the complexities of the tax code, ensuring that you take advantage of every available deduction while staying compliant with the law. They can also provide guidance on long-term tax planning strategies to minimize your tax liability.

Choosing the Right Tax Professional for Your Investment Property

When selecting a tax professional, it's essential to choose someone with expertise in real estate taxation. Additionally, consider their track record, client testimonials, and fees. Building a good relationship with a tax advisor can provide peace of mind, which creates massive tax deductions in the long run.

Planning for Future Tax Deductions

Long-Term Tax Planning Strategies

To maximize your investment property tax deductions, it's crucial to engage in long-term tax planning. This involves strategies such as considering the timing of expenses. Understanding the tax implications of property improvements, and exploring options for deferring income or accelerating deductions. Working with a tax professional can help you develop a tailored tax plan that aligns with your financial goals and minimizes your tax liability, even after the sale of the investment property.

Impact of Tax Deductions on Property Value

It's important to understand that tax deductions can have a positive impact on the overall value of your investment property. By reducing your tax liability, you can increase your cash flow and potentially reinvest the savings back into your property. Sound tax planning can enhance your property's attractiveness to potential buyers or investors.

In conclusion, maximizing your investment property tax deductions requires a solid understanding of the tax laws, careful recordkeeping, and strategic planning. By familiarizing yourself with the basics of investment property taxation, utilizing common deductions, and working with experienced tax professionals, you can optimize your tax benefits while complying with the law. Remember to stay updated on the latest tax regulations and consider the long-term implications of your deductions. With careful planning and execution, you can make the most of your investment property tax deductions and achieve financial success.

If you have already purchased your first home, congratulations! The next step in building wealth for your future could be to plan for the purchase of a second property as an investment.

Owning two properties is a great financial ambition and with Australian house prices on the rise, doing so has great potential to improve your financial situation in the long term. But please don’t be fooled – just because you have done it once before doesn’t mean it will be easy! Buying a second property also requires hard work, discipline and effort. Here are some financial pointers to help with the process of buying your second property.

    1. Property purchase purpose
      The first thing you need to understand is why you want to buy a second property. Are you planning to rent out your original property and buy something else to move into? Are you buying a ‘renovators dream’ to knock down and develop? Are you buying because you want a beach house and you will spend half your time in each location?Really understanding why you want a second property before you set out will help to inform all your other decisions in the property purchasing process. For example, if you are buying as an investment property, decisions around location, capital gain potential and rental yield will influence you in a different way than when you are buying something for yourself to live in.
    2. Your cash flow and budget
      There are no two ways around it – having a second mortgage is going to have a significant impact on your monthly cash flow! Ask yourself: can you easily service both mortgages? Do you have a stable income?Better still, keep a budget so you know what you can reasonably handle so you won’t over-extend yourself. The key here, and this is what a lender will look for, is your ability to earn enough to service both your first and second mortgage effectively, on top of the cost of living.

      It is important to fully assess and understand your borrowing capacity. (We can help you with this – just give us a call). As with any other home loan application, your second mortgage will be assessed on your income versus expenses. Lenders will look at your overall position of asset and liabilities, which means if you have any existing debts such another mortgage (which you do have), personal loans or credit cards, your borrowing capacity is going to be less, compared to if you were debt-free.

      When considering your cash flow and budget, it is also well worth including a ‘safety buffer’ contingency plan. This could be three to six months’ worth of repayments and living expenses, or similar, depending on your savings ability. It is important to have a safety buffer if you are hoping to use your owner-occupied property as security to fund the deposit for the second home.

    3. Will you be renting out one of your two properties?
      If the answer is yes, and for most of you we imagine that you are buying a second property for investment purposes, it’s essential to get a rental estimate for your second property before you make your purchase.If you are just in the research stage, having a rough estimate of rental income will help with setting your budget and understanding your cash flow (see point 2), but if you have chosen ‘the’ property to buy, most lenders will require a rental estimate letter from the real estate agent currently handling the property at the application stage.

      Lenders will factor in any possible rental income (if applicable) when determining your borrowing capacity, ensuring it is set at a safe limit – reducing your risk and theirs!

      When choosing a property for rental income, it’s important that the property is well located and will be easily tenanted so that it continues to generate income and support itself.

    4. Loan type & loan structure
      Interest rates have been very low for some time, which makes it a great time to consider buying a second property. And right now there are literally thousands of home loan options out there for you to consider. However, there are many variables to take into account when financing your second property purchase – so it’s a good idea to give us a call. Finding the right home loan product for your financing needs depends entirely on your current financial position and your short and long term goals. This is why the right advice is imperative when taking on a higher amount of debt across two different properties. It is best to speak to us about these options and the best way to structure your finances, before you even choose a property to buy, so you don’t get stung later on in the process. A few scenarios we could discuss include:Using your existing equity
      If you’ve lived in your first home for some time, there’s a good chance you have grown your equity. Equity is the difference between what your home is worth and how much you owe on it. For example, if your home is worth $550,000 and you owe $200,000 then you have $350,000 in equity.

      Tapping into this equity could give you a larger deposit for your second property purchase, which could be beneficial for your borrowing capacity and your overall budget. If you’re looking to do this, you will need to have your home revalued. In order to determine how much equity you have in your home, a lender will perform a valuation using an independent valuer before determining how much you can borrow and approving your loan.

Refinancing or staying with your current mortgage lender
Buying a second property offers the perfect opportunity to give your existing mortgage a health check. Use the opportunity to consider your home loan needs in relation to your future goals and ask yourself how well your current loan is performing for you. If you’re satisfied with the service your lender is providing and you have determined that the interest rate and fees you’re paying are competitive, there may be no need to refinance to another lender. However, there are some record low rates on offer at the moment and if you have had your mortgage for some time, it would be worth talking to us about what other home loan products are suitable for you and your goals.

Buying your second property is by no means a small task. We are here to help you with your financial goals, so please chat to us about how we can structure your loan so your second property purchase can really set you up for the future.

If you have already purchased your first home, congratulations! The next step in building wealth for your future could be to plan for the purchase of a second property as an investment.

Owning two properties is a great financial ambition and with Australian house prices on the rise, doing so has great potential to improve your financial situation in the long term. But please don’t be fooled – just because you have done it once before doesn’t mean it will be easy! Buying a second property also requires hard work, discipline and effort. Here are some financial pointers to help with the process of buying your second property.

  1.  
    1. Property purchase purpose


The first thing you need to understand is why you want to buy a second property, for example:

Are you planning to rent out your original property and buy something else to move into?

Are you buying a ‘renovators dream’ to knock down and develop?

Are you buying because you want a beach house and you will spend half your time in each location?

Do you need a second passive income?

Do you want to build a granny flat at the back of your house in which case is it easier for to just buy a second house?

Do I need to pay land tax?

Are all my properties in the one state?

Understanding why you want a second property before you set out will help to inform all your other decisions in the property purchasing process. For example, if you are buying as an investment property, decisions around location, capital gain potential and rental yield will influence you in a different way than when you are buying something for yourself to live in.

Interest rates, deductible expenses, depreciation and other factors will and should influence your decisions before you purchase that second house.

  1. Your cash flow and budget


There are no two ways about it – having a second mortgage is going to have a significant impact on your monthly cash flow!

Ask yourself: can you easily service both mortgages?

Do you have a stable income?

Will your income significantly change in the next year?

Always keep a budget so you know what you can reasonably handle you don’t need over-extend yourself at these crucial moments and at these life changing events. The key here, and this is what a lender will look for, is your ability to earn enough to service both your first and second mortgage effectively, on top of the cost of living and factoring in a second income from rental income if you choose to rent our your second place or both. 

It is important to fully assess and understand your borrowing capacity. Australia wide tax solutions can assist you with this please call us. As with any other home loan application, your second mortgage will be assessed on your income versus expenses. Lenders will look at your overall position of asset and liabilities, which means if you have any existing debts such another mortgage (which you do have), personal loans, credit cards or car loans, your borrowing capacity is going to be less, compared to if you were debt-free.

When considering your cash flow and budget, it is also well worth including a ‘safety buffer’ contingency plan. This could be three to six months’ worth of repayments and living expenses, or similar, depending on your savings ability. It is important to have a safety buffer if you are hoping to use your owner-occupied property as security to fund the deposit for the second home.

Our partners at Australia Wide Tax Solutions can set you up with real time bank feeds driving straight to your phone where you can see your budget needs to the hour, all incoming and outgoing cash can be monitored right at your fingertips please ask us about this app

  1. Will you be renting out one of your two properties?


If the answer is yes, and for most of you we imagine that you are buying a second property for investment purposes, it’s essential to get a rental estimate for your second property before you make your purchase. If you are just in the research stage, having a rough estimate of rental income will help with setting your budget and understanding your cash flow (see point 2 above), but if you have chosen ‘the’ property to buy, most lenders will require a rental estimate letter from a real estate agent currently handling the property at the application stage.

Lenders will factor in any possible rental income (if applicable) when determining your borrowing capacity, ensuring it is set at a safe limit – reducing your risk and theirs! When choosing a property for rental income, it’s important that the property is well located and will be easily tenanted so that it continues to generate income and support itself.

  1. Loan type & loan structure


Interest rates have been very low for some time, which makes it a great time to consider buying a second property. Right now there are literally thousands of home loan options out there for you to consider. However, there are many variables to take into account when financing your second property purchase it’s a good idea to give us a call for sound advice. Finding the right home loan product for your financing needs depends entirely on your current financial position and your short and long term goals. This is why the right advice is imperative when taking on a higher amount of debt across two different properties. It is best to speak to us about these options and the best way to structure your finances, before you even choose a property to buy, so you don’t get stung later on in the process. A few scenarios we could discuss include:

Using your existing equity


If you’ve lived in your first home for some time, there’s a good chance the equity in your house has increased. Equity is the difference between what your home is worth and how much you owe on it. For example, if your home is worth $550,000 and you owe $200,000 then you have $350,000 in equity.

Tapping into this equity could give you a larger deposit for your second property purchase, which could be beneficial for your borrowing capacity and your overall budget. If you’re looking to do this, you will need to have your home revalued. In order to determine how much equity you have in your home, a lender will perform a valuation using an independent valuer before determining how much you can borrow and approving your loan.

Refinancing or staying with your current mortgage lender?


Buying a second property offers the perfect opportunity to give your existing mortgage as a health check. Use the opportunity to consider your home loan needs in relation to your future goals and ask yourself how well your current loan is performing for you. If you’re satisfied with the service your lender is providing and you have determined that the interest rate and fees you’re paying are competitive, there may be no need to refinance to another lender. However, there are some record low rates on offer at the moment and if you have had your mortgage for some time, it would be worth talking to us about what other home loan products are suitable for you and your goals.

Buying your second property is by no means a small task. We are here to help you with your financial goals, so please chat to us about how we can structure your loan so your second property purchase can really set you up for the future.

Can Salary Sacrifice assist you in paying off the home sooner or more tax effectively? Please read are blog here.

Choosing to build a granny flat could be another option if you don’t have massive equity in your current property, choosing to rent this out even to students from language schools can significantly increase your income capacity and at a less expense, the only issue you have is council approval and the time it takes to build your granny flat, we have builders that can do it under 12 weeks from the time DA approval is granted, hence you can organise yourself in regards to a drawdown to your mortgage.

When you have more than a primary resident in any one state your land tax bill can be significant please ensure that you factor in your cash flow budget amounts to this tax as most investors forget to include this in there cash flow analysis, notwithstanding they forget to inform the office of state revenue of their second property, and years later they receive a massive land tax bill only to find they need to mortgage this amount to pay for it, or to go on payment plan with the office of state revenue. Remember to register your second property with the office state revenue here.

There are many investors that may choose to buy in different states and in different entities to minimise all the above costs, when building a property portfolio you should consider tax planning in advance before you buy any of the investment properties having a clear tax plan will ensure that you do end up with a passive income in the end.

Whatever your choice maybe, you should always consider to maximise your tax benefits at all costs, creating more income in the most tax effective way can create a great passive income now and into the future or can assist you to decrease your home loans in the most effective time.