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Changing housing indicators can affect the market dramatically
and with interest rate and listings up and auction clearance
rates down, affordability can remain a problem.
A range of indicators confirms the housing market has slowed
significantly in recent times. Interest rates and listings are
up and auction clearance rates in a lot of areas are down.
However, affordability still remains an issue for those wanting
to purchase in the most desirable locations.
Regardless, this shouldn’t be a deterrent for investors who can
afford to service an investment loan and are willing to take a
long-term view – generally, at least seven to 10 years. Stories
about properties purchased for $40,000, 30 years ago that are
now selling for more than $1m are commonplace. And the
historical data confirms this.
Obviously, it is best to purchase property at the lowest point
in a property cycle. Affordability also has less impact on
investors than people who aspire to own the property, as most
losses can be offset against any taxable income.
Decreasing affordability can also be a good thing as it means
more people are forced to rent, which increases your return on
investment. So if you can afford it and are prepared to take a
long-term view, now is a good time to enter the market.
One strategy that helps manage an investment loan by increasing
cash flow is an ATO initiative called the ‘Income Tax
Withholding Variation’.
This enables you to project the ‘loss’ you will make on an
investment property. ATO then authorises your employer to
reduce the amount of tax you pay to reflect your new
‘projected’ income. The beauty of this strategy is that it
enables you to access money that you would have received after
completing your tax return throughout the year. In effect, the
ITWV enables you to make a cash flow adjustment to help fund
your investment property.
A word, of caution though: make sure you do not overexpose
yourself. Despite both the cash flow and taxation benefits, you
still have to be able to service the loan.
Therefore, it is imperative you consider how your investment
may impact your lifestyle. You also need to try and ensure the
capital growth exceeds your annual costs. The best way to
achieve this is to bear in mind the old real estate truism:
location, location, location.
That said, when utilised effectively, ITWV is one strategy that
helps savvy investors ‘fast track’ their wealth creation via
property.
* Please note: It is essential that you obtain advice from your
accountant, solicitor or financial planner before launching
into an ITWV strategy.
by Mark Bouris -
24 Feb 2009
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