If you’re not a seasoned property investor, making your first property purchase can be a daunting process.
To help you on your property investment journey, here are 13 simple steps you can follow:
1. Consult With Your Accountant
At Knox Taxation and Business Advisory, we specialise in providing advice in the following areas related to your property investment:
- Cash flow and forecasting
- Choosing the best structure to protect your investment and maximise your tax savings (Refer to pg.8)
- Highlighting the deductible expenses to claim to reduce your income tax
- Preparing a Profit & Loss Schedule
- Preparing a PAYG Withholding variation (if relevant to your situation)
- Providing expert insight and reporting on Capital Gains Tax (when you sell your property)
- Assisting with referrals to buyer’s advocates, insurance brokers, solicitors and mortgage brokers for your benefit.
If you’d like to read more information about how we can help you throughout your Property Investment journey, click here.
2. Organise Finance
When arranging your finances, seek the services of a mortgage broker. If you don’t currently have one, we can refer you to one of our great colleagues.
They can provide you with greater insight into the likely success of your loan application as well as the potential costs.
In some cases, we recommend clients to get their loans pre-approved, especially if they plan to buy a property by auction. Pre-approving your loan means that you are more likely to stick to your budget and reduce any risks (if your loan is disapproved).
To read more information about properly financing your property, download our FREE Property Investor Starter Pack.
3. Find the Right Property
Property experts advise that quality property doubles in value every 7-10 years and grows on average by 7%-8% per annum, above the rate of inflation.
Sure, that sounds fantastic theoretically, but it’s not that easy to determine what a quality property investment looks like, compared to a dud that only costs you money.
One of the critical elements of purchasing an investment property is that you buy within a great location. Ideally, somewhere that has proven and predicted capital growth over time.
Some other things to consider include:
- Is it a competitive and sustainable rental?
- What is the architecture like versus other properties around it – Modern? Similar?
- Is the floor plan logical and practical?
- Is it structurally sound?
If you’re time poor (like most of us), we strongly recommend that you engage the services of property experts and professionals in the industry. They can use their knowledge to benchmark various properties in different suburbs to highlight where you are likely to have greater success.
4. Purchase an Inspection Report
Before purchasing any property or signing contracts, ensure your engage a qualified building inspector to look at the property and seek out any faults or defects.
If any defects/faults are found, this could give you leverage to negotiate a better deal or may even influence your overall purchase decision.
By getting an inspection report before you buy, you could save yourself:
- Time and money in the long-term, and
- From buying a property containing defects (which could cost you a fortune later).
5. Plan For Stamp Duty
Stamp duty is a large expense that needs to be accounted for when purchasing a property investment.
If you’re planning to use the property as your principal place of residence at the time of purchase rather than an investment, stamp duty will be less. Especially, if you are a first home buyer.
When you pay Stamp Duty, it is added to the cost base of the property. This can benefit you when calculating Capital Gains Tax at the time of sale. It is therefore important to keep records of the amount of stamp duty paid.
6. Plan For Conveyancing Costs
Conveyancing involves the transfer of a property title or mortgage from one person to another.
It is usually completed by a solicitor or a licensed conveyancer and may take up to 4-6 weeks to complete. We can refer you to to a great conveyancer if you don’t know of one.
7. Get a Cash Flow Analysis – OUR AREA OF EXPERTISE
We can provide you with a report showing your current cash flow situation as well as any forecasted cash flow.
This will take into account income and expenses of your property investment, and will depend on whether your property is positively geared, negatively geared or neutral.
Negative gearing implies that your property experiences a net cash outflow (loss). That is, the rental income that you receive from tenants is not enough to cover the costs associated with owning the property. Therefore, you need to fund this loss from another income source (eg. salary).
On the other hand, Positive gearing occurs when you receive more rental income from your tenants than your expenses – what you need to pay in terms of your loan repayments, interest, property maintenance, management fees, rates etc.
If a property is considered neutral, then this means that the income earned from tenants equals the costs of the property. You’re not experiencing a profit or a loss.
We can generate a report showing your cash flow situation taking into account the real out-of-pocket expenses and after-tax costs per week you are likely to incur.
8. Sign the Contract
When you are ready to sign the contract, we recommend engaging a conveyancer or solicitor to attend to the legal elements of the contract. It is also imperative to identify whether GST applies to the purchase as this can impact your total price paid.
You will need to pay GST if you purchase a “new” property (newly built). If GST applies, it must be clearly specified in the contract including how it will be calculated.
A couple of other things you may want to add into the contract include:
- Making the contract subject to finance (in case the loan falls through or there are issues)
- Inserting a separate schedule of the fixtures and fittings with depreciation claims
9. Get the Right Insurance For Your Property Investment
To protect your investment, it is important to take out the necessary insurance relevant to your situation.
We can refer you to an insurance broker who can direct you towards the insurance you need.
Below are some common Insurances for Property Investors:
- Income Protection Insurance
- Building & Contents Insurance
- Public Liability Insurance
- Landlord Insurance
- Life Insurance
- Lender’s mortgage insurance
10. Update Your Will & Any Legal Documents
Purchasing a property is an expensive investment.
For those of you who have not reviewed your Will for a while, it’s time to blow away the dust and cobwebs. Make sure you update it to reflect your current wishes so you’re loved ones are looked after.
11. Prepare Your Property for Tenants
As part of your preparing your property to be rented, you may need to do some repairs or renovations to maximise rental income.
It is critical to keep any receipts related to property investment repairs. Although you may not receive an immediate tax deduction, we can add these to the cost base of the property, at time of sale (disposal). This will reduce the Capital Gains Tax incurred once sold, and depreciation can be claimed.
12. Find Tenants
Searching for suitable tenants can be a lengthy process if trying to do it all on your own.
If you don’t have the time to do this yourself, it’s worth using a real estate agent or property management agency to do all the time-consuming work for you.
They often charge a fee for their services, but it’s worth it in the long run. Particularly, if it helps you to avoid any issues with rental bonds, condition reports, rental agreements and fines.
After all, why would you want to deal with all of those things when someone else can do it for you?
13. FINAL STEP – Come Back & See Us!
Once your property is up and running, your next step is to arrange another appointment with your accountant.
In this appointment we will:
- Prepare a PAYG Variation (if your property is negatively geared)
- Prepare an annual rental profit and loss
- Set up records for Capital Gains Tax
- Discuss any other ongoing tax related topics that may impact you overtime
Ready to get started with your first property investment? Or to come in for a chat with your accountant? Give us a call on (03) 9762 7344 to arrange an appointment.
Alternatively, click on the “Book an Appointment” button at the top of this page. We’ll then get back to you shortly to find a suitable time.
Other than that we wish you all the best as a property investor!
If you’re new to Property Investing, and would love to develop your knowledge, check out and download our Property Investor Starter Pack. We also have a Property Investor Q & A Pack that you may helpful, as it answers many of our client’s common questions about Property Investment.