This document provides tips for investing in property. It recommends looking for properties near city centers or in areas undergoing gentrification that have pleasing aesthetics or potential. Both supply and demand factors should be considered when analyzing an area. As the population ages, properties should cater to older buyers wanting single-level homes near transportation and services with low maintenance. Using an accountant ensures proper tax treatment of rental income, interest deductions, and capital gains exemptions. A potential strategy is declaring an investment property as a main residence for up to six years to avoid capital gains tax when selling.

1. GENC3003Personal Financial Planning Andrew Hingstonandrew.hingston@unsw.edu.au Unit 11: Investment property tips

2. 2 Investment propertiesClitheroe’s tips on location Close to the city centre Where gentrification is happening or will happen soon Is aesthetically pleasing or has the potential to be so Has a unique or rare positive characteristic (scarcity adds value to an asset). Warning: These tips are old now … everyone knows them!

3. 3 Investment propertiesAndrew’s tips Consider both supply and demand of properties Supply determined by new land releases, developments and also people “willing” to sell their property. Demand determined by whether people want to live there! If supply is low and demand is increasing then prices will rise more quickly (eg. Inner city and trendy areas) If the supply is growing and demand is increasing then prices will only rise slowly. (eg. NW and SW Sydney)

4. 4 Investment propertiesRemember the baby boomers The population is aging So the most likely buyer of an investment property from you in 10 years will be an older person! Think about who you will sell the property to in 10 years when you buy it now! Older people prefer: Single level, good quality, smaller dwellings Good access to transport and health services Low maintenance (small gardens) Clean, quiet and safe.

5. 5 Investment propertiesTax tips Get an accountant The ATO is auditing a lot of property investors! Rent income is assessable income Interest on loan is an allowable deduction The entire amount of loan payment is NOT deductible (only the interest component) Other allowable deductions: Depreciation on the cost of the building Depreciation on furniture and fittings Capital gains are assessable only when you sell the property.

6. 6 Investment propertiesAbsence from main residenceCGT exemption When you sell an investment property you normally pay tax on the capital gains (amount it has gone up). However … You can elect one property to be your “main residence” even if you don’t live in it. You can “live” away from main residence and rent it 6 yrs. You can then sell it and claim “CGT exemption” and pay no tax on capital gains. This should only be done with advice from accountant!

7. 7 Investment propertiesPossible CGT exemption strategy Husband buys investment property, lives in it for 1 week and declares it to be “main residence” Electoral enrolment is at that address Separate “home” purchased under wife’s name and is her main residence. Husband and wife live in “home” Husband rents out investment property, negatively gears it for up to 6 yrs then sells property and pays no CGT Husband buys new investment property and repeats Beware … this is a very “grey” strategy!!