Finance Options
Having located an excellent property we need to ensure that we finance it in the most appropriate manner. The difference in borrowing for shares or property is that the tenant will pay off the mortgage for you.
It is necessary to structure your investment to get the maximum tax breaks from the start and by using other people's money, you free up your funds for other options.
PR Australian Properties will assist you to open a bank account and obtain a tax file number.
CREDIT RATING FOR OFF SHORE BORROWERS.
Loans can be arranged even if you have no intention of moving to Australia. However, if you do move to Oz at a future date, establishing a loan prior to relocating removes this restricition as you have establshed an Australian credit rating. If you don't establish a credit rating before relocating you may have difficulty arranging a loan without having 2 years work history in the country. To establish a loan prior to moving negates this as you will have established a credit rating.
Contrary to public opinion opening a bank account in Australia before you relocate WILL NOT give you a credit rating.
We discuss project by project the type of leveraging, the property can be either:
Positively Geared.
This means that the income is greater than the outgoings. Generally speaking one needs to pay cash for a property or put in a bigger deposit to have a positive cash flow. The other alternative is to invest in a property, which is geared for holiday letting, as this will always be a higher return.
Negatively Geared.
This means there will be a shortfall as the income is less than the outgoings. The rent will cover the mortgage (bond) and a portion of the outgoings but not all of them.
Balanced Geared.
This means that there is no shortfall or surplus between the rents and the outgoings.
Again generally speaking one needs to put in a higher deposit to have balanced gearing.
The cash flow examples will give you a good idea as to what the situation is project by project.
Non-residential investors can also claim the deductions and allowances that an Australian citizen can with their property investment(refer to taxation benefits). The difference being only that Australian income earners may claim the tax adjustments on a weekly or monthly basis (i.e. at the time of payment of income). Offshore income earners claim their tax adjustments annually. ALL tax credits can be accrued until anytime clients either relocates to Australia Or on sale of property
OBTAINING THE LOAN.
It is necessary in Australia to provide three things when applying for finance for property
- Proof of deposit (photocopy of bank account or shares)
- Proof of income (2 years tax assessment)
In the event you can't show a tax return we can arrange a "Low documents "loan which may be a slightly higher interest rate and the amount you can borrow may be less.
- Proof of Identity ( Photo copy of passport, drivers licence, id book)
Our ongoing commitment to our investors also ensures that you are kept informed on any pending interest rate changes and are at all times aware of all factors which have any affect on your investment here in Australia.
DEPOSIT REQUIREMENTS
PR Australian Properties will arrange the mortgage on your behalf at the current interest rate available.
We provide a complete break down of fees for all properties.
The 2 factors lenders take into consideration are
1) LVR (Loan Value Ratio)
They will lend off shore investors to the value of 70% to 75% valuation of the property.
For local residents, they will lend 90% of the valuation of the property
2) DSR (Debt Service Ratio)
No more than 35% commitment of gross income is permitted.
This is mainly applied to local residents and not overseas borrowers.
People who earn their money in Australia can either have cash deposit of 10% or equity in another property for the 10% plus the fees. A personal consultation will enable us to calculate your exact "borrowing capacity"
Some offshore lenders will also allow foreign buyers to mortgage their own property in their country to raise the necessary deposit for their Australian investment.
TYPE OF LOAN.
The loan will be for 25 to 30 years and there is no age restriction to it. We have arranged finance for people 89 years of age.
It is sensible to take out an "interest only" loan for the first 5 years as there are no taxation benefits on the principal.
Some off shore investors have a hard time coming to terms with this concept of not repaying principal. If after 5 years you still have the property then the increased rents should contribute to the principal component of the loan.
It is all about leveraging your money the most effective way.
The loan we arrange will be an access loan meaning that you can put more money in and then take it out as you want it. We arrange a maximum loan for our clients and that means they often have access to more funds than they require for this purchase. They don't pay interest on the loan we arrange until they draw it down, in parts or in whole. Interest is only payable on the amount drawn down.
We also have a variety of lenders who will be flexible and not have ongoing costs and heavy exit fees for clients who wish to pay out the loan early.
TAXATION CLAIMS.
Property investment is the most effective way one can legally reduce the amount of tax they pay in Australia and the more properties you have the less your taxable income will be.
The more properties you acquire the greater the asset base and the lower the taxes.
You can claim any shortfall for properties against the income
You can claim depreciation at 2.5.% of the construction cost of the premises. This increases to 4% for holiday let properties.
We arrange a depreciation schedule from a licensed quantity surveyor
You can also claim depreciation on fixtures and fittings.
You can claim approximately half the acquisition costs over 5 years.
You can claim inspection costs.
The taxation claim is accumulative and can be carried forward until the year you sell it and will be deducted from the eventual capital gain tax.
If you do move to Australia and earn income there, it will assist to reduce the tax you pay.
Example $60,000 income earner without a property: Tax will be $13,520 per annum. By owning a Rental Property this tax can be reduced by $6,500 plus - and that saving is paid in CASH into your pay packet.
Please contact us NOW for a personal example.....
With property New taxable income may be reduced to $37,500 Tax would be $7,696
(We Have Examples Available On All Properties - THIS IS A GUIDE ONLY)
AUSTRALIAN INVESTORS CONTACT US FOR FREE TAX ASSESSMENT
OBTAINING A TAX FILE NUMBER.
It is necessary to lodge a tax return every year, even if your investment is not making a profit. You need to register all the claims you will be building up so that at sale you have them recorded.
We can assist off shore purchasers to obtain their tax file number and introduce them to accountants who will prepare and lodge the return to ensure they achieve maximum benefits.
The cost of applying for a tax return via an accountant is approximately $350.00 + GST per person
The cost of a tax file application is $165.00 per person and a tax return is $192.50 per person depending upon the work required. If you own more than one property it is not per property but per person owning the property.
