Own your own investment property for as little as $33 per week

18-Oct-2011 With many of the big banks making the decision to lower interest rates on some of their fixed rate products, it’s now become more affordable than ever to own an investment property.

Most people are surprised when they learn just how little an investment property can cost them after they claim their negative gearing and depreciation tax benefits, especially now that some banks have cut their fixed interest rates by up to 0.6 percent.

Understanding negative gearing is one of the most powerful pieces of knowledge you can have as a property investor. It will reduce your fear of the unknown and provide you with a greater understanding of how you can use the concept to guide you on the path to wealth, whilst planning for risks such as interest rate movements or tenant vacancy.

Essentially, negative gearing means that if the total property costs - such as interest, rates and depreciation - are more than the rent received; the difference can be claimed on tax, so that the tax returned helps to pay the costs.

To demonstrate this concept, let’s look at a real life scenario:

For a $500,000 property with a $50,000 deposit, $35,000 costs and a $485,000 loan, total weekly costs are:

Rates	$1,100 per annum	$21 per week
Body Corporate	$2,400 per annum	$46 per week
Agent Management Fee		$35 per week
Maintenance		$20 per week
Allowance for vacancy	2 weeks per annum	$20 per week
Total Cost		$707 per week
Less rent		$500 per week
Leaves gross cost of:		$207 per week

This is the first tax deduction and is claimed at your marginal tax rate, assuming 38 percent, $207 x 38 percent = $78 tax refund pw (which can be refunded each payday).

Therefore net cost = $207 – $78 = $129 (this is essentially how much it would cost if the property was quite old with no depreciation benefits).

Depreciation tax benefit

The depreciation estimate for a fairly new property of this value is approximately:

$230,000 for the building claimed at 2.5 percent per annum = $6250 per annum

$35,000 for fixtures and fittings at 20 percent reducing per annum = $7000 Yr 1, $5,600 Yr 2...

Giving total depreciation of $13,250 for the first full year = $254 per week

This depreciation is a full tax deduction, so again with a tax rate of 38 percent, the tax refund is $254 x 38 percent = $96 per week.

Therefore the final net holding cost = $129 – $96 = $33 per week – a relatively small commitment which will go a very long way towards your future financial security.

To learn more about how negative gearing can work for you, call us at the office on 1300 308 808, get in touch with your inSynergy property investment specialist or contact us here.

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Own your own investment property for as little as $33 per week

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