Should I be Jumping to Buy Property?

It’s the question I am getting asked a lot these days.

Especially from my Queensland clients. The market has gone bonkers with a few nuts thrown in for good measure.

Real Estate Agents have not had it so good in years and doing their best to get the best price for their clients.

And all of a sudden everyone is suffering FOMO and want to jump in.

The market is so hot that one of my clients was told not to bother with an offer. The Agent told all interested parties to sign contracts and the seller will then look at the highest price and sign the contract.

This is usually a sign that there is a bubble. And during a bubble, when everyone is jumping in, it is said by those in the know, that this is when you jump out.

But the reality is no one really knows. You see everyone you meet seems to be a expert. But the reality is we have never been in this position before.

We are in the middle of a global pandemic. Half the world is operating from home, some successfully, others not so. Government borrowing is at astronomical levels and interest rates are at level last seen about a billion years ago. Ok maybe not that long ago. But probably similar to levels last seen when the Pharaohs were around.

We are told interest rates will remain low for a while. After all it is in the interest for all Governments to keep interest rates low considering their borrowing.

And, historically, we know that when interest rates are low, asset values tend to rise whether it’s the stock market or property. But that does not mean it will during these crazy uncertain inside out and upside-down world.

The reality is there is no money in keeping money, so everyone is looking to park it elsewhere. For some that means the stock market. Or Crypto-currency. Or property.  

Is this a property bubble and is it going to burst? Err… no idea.

The dynamics for property has changed. The Brisbane market has limited supply but crazy demand. Add to that increased interstate migration as people realise you can have the lifestyle and the career. And this is when borders are closed so you can imagine what would have been the case if foreign buyers are here. You have a pressure cooker type scenario.

Many believe that there will continue to be growth for the next 12 months and then stability. Like I said above, no one really knows. One thing I can tell you is this. The Economist magazine undertakes regular surveys on property prices and has predicted that prices in capital cities are overstated. And yet rarely have they fallen. As I said no one really knows.

But this working form home and lifestyle is interesting. Google and Amazon recently asked for their teams to return to work.

So, will demand continue now that many businesses will be looking to have their teams back in the office even if it is for a minimum of a few days per week? It is the sixty-four-million-dollar question. 

So, should you consider property? If you are, make sure you plan it correctly. Make sure you cover all your angles. We have written a detailed guide on buying property so click here to access it but in a nutshell, make sure you have thought about the following: 

1. Choose the right structure 

Asset protection and taxes are important for investment growth and wealth protection. 

So, do you invest in your own name or in an investment trust or a company? For that you need to your advisor who based on your circumstances will advise you.

Trusts are crucial for asset protection. They can also if used correctly help in estate planning especially if you have minor or adult children.

When buying an investment property you should be looking for capital growth and reduced taxes because the more you keep the compounding benefits you get over the long term.

But trusts is not always the best option as a company or individual might save you more on land tax. Speak to a professional.

2. Keep Private and Investment Loans Separate 

Try to avoid mixing private and investment loans.

The ATO allow you to claim interest on investment loans but not on private loans. So if they are mixed there are grey areas so best to keep them separate.

When it comes to which loans you pay off first then generally you tend to go with private loans as these are not tax deductable.

3. Deductions! 

If you send any money on your investment property keep a record of it. These can all be claimed to lower your taxes.

Many claim building depreciation and this may be worthwhile from a tax point of view but always remember if you claim depreciation when you sell you will have a larger capital gains tax bill when you sell.