Buying An Investment Property

Mortgage Broker Sydney Tips When Buying An Investment Property in NSW

If you know somebody buying an investment property in NSW this weekend, suggest that they request from the agent a 6-week settlement period so they can avoid Land Tax this year, which is payable on investment land owned at midnight December 31st.

Requesting a January settlement should be easy to do if the vendor is selling their home, as it makes no difference to them; they might actually enjoy hanging onto it over the New Year’s break.

But If you’re buying somebody’s investment property, hmm, they probably want to settle prior to New Years’ for the very same reason, but you can try… most people aren’t very well financially advised.

Land tax is the deadly cost of owning investment properties in NSW, a whopping annual 1.6% tax based on the combined land value of your investments that exceeds $755,000.

So the example above is a way of getting out of the first year’s tax bill, but here are some tips for the long-term;

1. Spread the love

This is easy for couples. Spreading investment between a couple mean you might be able to own 4 investment properties (2 each) and still be under their individual threshold.

If you think that your negative gearing strategy mightn’t gel with this, just do the cals, or I’ll help you. Remember, negative gearing doesn’t always last long, especially with today’s low interest rates.

2. Consider apartments with lower land values

Part of your strategy of what kinds of properties to invest in should at least consider land tax, but of course not be completely based on it.

3. Buy in a SMSF (Self-Managed Superfund)

There are so many benefits to acquiring property through a Self-Managed Superfund. What some don’t know is that SMSF’s get their very own Land Tax Free Threshold.

The decision for Tina and I to buy the iChoice commercial premises here in Strathfield in our Super 3 years ago means that the Land Tax is around $3,000 every year, rather than $13,000 if we had bought it in our personal names.

Don’t be afraid to give your Superfund a cool name. Mine’s called ‘Khoury Boys Pty Ltd T/As Khoury Boys Superfund’. I also registered khouryboys.com.au, just in case my boys own a pizza shop one day 🙂

4. Never buy in a Family Trust

Family Trusts are great for running businesses (ideally as a shareholder of a pure Pty Ltd, but that’s another story). But if you’re buying a property in a Trust for the purpose of asset protection, set up a Unit Trust so the land tax threshold flows through to the unit holders.

Buying in a Discretionary/ Family Trust means you’ll pay Land Tax on the lot. There is no threshold.

5. Invest interstate

Land Tax is a state-based tax, so once you’ve reached your threshold here in NSW, consider investing interstate.

I bought 3 little townhouses in Queensland last year and one of the main reasons was because there would be no Land Tax.

On the mortgage front, not all the banks have reacted to the reduction of the Cash Rate to 0.1% on Tuesday, but we are already seeing the majors rolling out fixed interest rates of 1.99%.

I’ll let you know in a couple of weeks where the banks, and yours, has ended up, so you can make some smart decisions, realising that not making a decision is very much a decision 🙂

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