Travel expense deduction scrapped

As of July 1, 2017, property investors can no longer claim a tax deduction for travel to maintain, inspect or collect rent for their rental property. Likewise, you can no longer claim travel expenses for preparing the property for new tenants, or for visiting a real estate agent to discuss your property.

Investors who own property interstate will probably be the most affected by this change. If these changes do affect you, perhaps consider employing a property manager to perform some of these tasks for you, as their costs are usually still tax deductible. Talk to your accountant to find out more.

Depreciation deductions tightened

Depreciation is the decline in value of an asset with a limited life expectancy. Depreciating assets include carpets, furniture and appliances like water heaters and cookers (also known as plant and equipment).

Residential property investors can now only claim depreciation deductions for plant and equipment expenses if they purchased them. Previously, investors could claim plant and equipment depreciation on assets that were installed by a previous owner.

This “integrity measure”, introduced in last year’s Budget, was intended to prevent multiple property owners from depreciating the same assets, exceeding their actual value. The changes apply to second-hand plant and equipment acquired after last year’s Budget night (May 9, 2017). You also can’t claim a deduction for plant and equipment installed on or after July 1, 2017 if you have ever used it for private purposes.

If you owned or entered into a contract to buy your investment property before May 9, 2017, you will not be affected by these changes. You can still claim deductions for depreciating plant and equipment assets that were in the rental property before that date.

Further reading

You can find more information about the expenses you can claim for residential rental properties on the ATO website, available here. You’ll find details about expenses that are deductible immediately, such as management, maintenance and interest; and expenses that are deductible over several years, such as capital works and borrowing costs.

Your tax time checklist

Here are some tips to prepare for tax time:

• Update your Depreciation Schedule. You can find a Guide to depreciating assets 2018 here. If you’re confused, seek advice from your accountant. If it’s a new property investment, you may need to have a quantity surveyor prepare a Depreciation Schedule report.
• Understand what you can claim (refer to the ATO website for clarification).
• Get your documents together and organise your receipts.
• Tally up your deductions. It’s a good idea to create a spreadsheet with all your income and expenses listed. That way, you can save on accounting fees (rather than giving them a shoe box of receipts to go through).
• Book in with your accountant (they are flat out at tax time, so the sooner the better).

As your mortgage and finance broker, we’re happy to work with your accountant or financial planner on your investment property finance. And if you need a recommendation for a good accountant, we can help with that too. Good luck with your tax, and if we can assist in any way, please don’t hesitate to get in touch with us at Element Finance!

Interest Rate News

At its July meeting, the Reserve Bank of Australia (RBA) decided to leave the cash rate on hold at 1.5%, where it has remained since August 2016. Most economists now believe the RBA will leave the cash rate on hold until next year, and some are even predicting it will be 2020 before we see a change.

Meanwhile, lenders have been making changes to interest rates outside of the RBA’s decision. Several lenders raised interest rates marginally last month, citing funding costs as the driver.

If you haven’t had a home loan health check in a while, it’s important not to be complacent. Check in with us and we’ll compare the market to determine whether your mortgage still stacks up.

Property Market News

Dwelling values fell by -0.29% across the combined five capitals in the month to June 30. In Melbourne, prices fell -0.41%, while Sydney saw prices decline by -0.33%. Perth experienced a decline of -0.53% and Canberra -0.30%. Darwin experienced the largest monthly fall, with home values decreasing -1.12%. Hobart, Brisbane, and Adelaide all experienced very marginal increases.

Auction volumes have declined in recent weeks, although they are still quite strong for this time of year. In the week ending June 30, Victoria had 873 scheduled auctions and cleared 61% of stock. In New South Wales, there were 726 scheduled auctions, and 56% of properties sold under the hammer. Queensland had the third highest volume – 226 scheduled auctions, but only 32% of properties sold.

In South Australia, the clearance rate was 58% for 75 scheduled auctions. The ACT held 43 auctions, and achieved a clearance rate of 66%, while things were quieter in Western Australia – 38 scheduled auctions and a 22% clearance rate. The Northern Territory had only one auction and the property sold, while neither of the two properties to go to auction in Tasmania were sold.

Winter is a great time to purchase property, as there could be fewer buyers to compete with. What’s more, because the winter months are generally slower in the housing market, vendors may be more willing to negotiate on price. Remember, we offer finance solutions tailored to your specific financial situation and goals, so please speak to us at Element Finance about your finance needs, and if you’re in the market to buy a property, talk to us about pre-approval on your loan today.

Why refinance?

Refinancing your loan allows you to access the equity in your property. Equity is the proportion of the property you own – for example, if the property is worth $500,000 and you owe $200,000 to the bank, then you have $300,000 in equity.

Savvy property investors use their equity for a variety of different purposes:

• To renovate and add value to an investment property
• As a deposit for their next investment property
• To fund their lifestyle and living expenses.

Another popular reason to refinance is to secure a more competitive interest rate or a loan that better suits your needs. There may be loan features that can improve your interest savings or cash-flow, like offset accounts and redraw facilities. It pays to talk with your mortgage broker and reassess your property investment loans regularly, to ensure you’ve got the right loan to maximise your financial benefits and tax advantages.

Key considerations

1) Market value and equity
Generally, the right time to refinance your investment property is when the equity has grown sufficiently to take the next step in your investment strategy, or to fund your renovation plans. To get an idea of the value of your property, and how much your equity has grown, you’ll need to compare public sales data for similar properties in the area. Ask Element Finance for a free suburb and property profile report with the latest on-the-market information.

You could also ask real estate agents for an estimate (make sure you hit up at least three different agents) or pay for a professional property valuation. Keep in mind that a lender’s valuation will be on the conservative side of any estimates, and a formal valuation will be required by the lender before they will allow you to refinance.

2) Consider the costs
Switching lenders and refinancing your investment loan can help you achieve your goals, but there are costs involved. These may include break fees or discharge fees, establishment fees for your new investment loan, and valuation fees. Speak to Element Finance and we’ll run you through the costs and help you decide whether refinancing is worthwhile right now, or if it may be better to wait until your equity has grown further.

3) Investigate how the market is performing
Part of the decision about whether to refinance will depend on how the property market is performing for your investments. National dwelling values have been falling in many capital cities in recent months, while regional dwelling values have been edging higher. That may mean the location of your investment property will be a key consideration when deciding to refinance.

It’s important to be aware that if do you refinance after your property’s value has decreased, you may be facing negative equity territory. This is when the value of your investment falls below the outstanding balance on the mortgage. In this situation, it may be better to wait until the market recovers before you refinance.

4) Other considerations
The investment lending landscape has seen many changes in recent times. In April, the Australian Prudential Regulation Authority (APRA) announced the 10 per cent limit on bank lending to property investors (in place since 2014) would be removed for lenders that could demonstrate prudent lending. As a result, we’re seeing interest-only investment loans becoming easier to obtain, and interest rates being reduced by some lenders. That means now may be a good time to reassess your investment strategies and refinance requirements.

Talk with your mortgage broker first
If you’d like to access equity to grow your investment portfolio or renovate, or you just want to know you’re getting the best deal, it’s worth having a chat with your mortgage broker. You’ll find we are a wealth of information – and it’s always best to make a fully informed decision. If the time is right for you to take the next step in your investment journey, we’ll help you find the right refinance option to help you achieve your goals. Call Element Finance today!

Pros of renting

• You can live wherever you want

  Career and lifestyle are important considerations, whether you’re single or a family. Renting a place in a suburb or location that is close to your work, friends and ideal lifestyle amenities (like schools or shopping) can often be much more affordable than buying there.

• Flexibility
  If your work or lifestyle require you to be ready to up stumps and move at short notice, then renting gives you greater flexibility and mobility. Or if your situation changes and you find you need less expensive digs, you can quickly find a rental that fits your new budget.
• Lower costs and less hassle
  Renting is usually cheaper than buying and you won’t have to worry about ongoing expenses like rates, body corporate fees, maintenance, repairs and building insurance.

Cons of renting

• The ‘dead money’ argument
  Have you ever heard the phrase ‘rent money is dead money’? Many argue it’s much better to pay off your own home loan than someone else’s. It’s certainly true that capital gains on a property can potentially grow your wealth, and you can look forward to living ‘mortgage free’ within 25 – 30 years.
• Restrictions
  Common complaints from renters include living with the landlord’s décor, not being able to put hooks in walls, restrictions on pets, or even the number of people who live with you.
• Uncertainty
  Rental properties don’t offer long-term certainty. Moving can be expensive and you’re vulnerable whenever the lease ends or the landlord decides to renovate or move back in.
• Inspections
  Most rental properties require you to submit to inspections by the landlord or agent every six months. These can be stressful and inconvenient.

Pros of buying

• Freedom to do what you like with the property
  Buying your own property means you have the freedom to do whatever you want with it. You can decorate any way you like, and add value by renovating.
• Capital gains and wealth-building opportunities
  You’ll own an asset eventually, and while you’re paying it off the property could potentially increase in value. What’s more, you may be able to use the equity in your home to build wealth through property or other investments.
• Certainty 
  You’ll have the security and certainty of knowing where you’ll be living for years to come. You’ll also obtain a degree of financial certainty – because you’ll own a substantial asset.

Cons of buying

• Affordability constraints and costs
  High housing prices and low wages growth have made buying difficult for some people. However, there are incentives available like the First Home Owner Grant to help you get started. Ask us if you’d like to know more.
• Added responsibility
  Becoming a home owner means you’ll have new financial responsibilities (such as paying your mortgage repayments and bills in a timely manner).
• You may not be able to afford to buy where you want to live
  As a home buyer, you may have to compromise on location or property type to find a property that suits your budget at first. However, once you get a foot on the property ladder, the potential capital gains could help to make your next property purchase more ideal.

Have you considered rentvesting?

Just because you want to live close to the action doesn’t mean you have to forfeit your dream of owning property. Rentvesting is a strategy that allows you to live where you want and buy an affordable investment property elsewhere! You could potentially get a foot on the property ladder now, enjoy the benefits of capital growth and having a tenant to help you to pay the mortgage, but still live wherever you like.

Talk to us about what’s right for you

Whether to rent or buy comes down to your personal situation and goals. If you’ re considering buying, then talk to us and we’ll help you decide what’s right for you. Keep in mind that even if you don’t have a 20% deposit saved, there may be other ways to get you over the finish line to buy a home or kick off your rentvesting strategy. We’re happy to explain everything you need to know, so please get in touch with us at Element Finance today!

What is co-housing?

Co-housing is defined as “an intentional community” of private homes built around shared facilities. These common spaces may include a common house with a shared kitchen and dining area where residents can cook and eat together.

There may be community gardens, playgrounds and recreational spaces. Some co-housing developments may even include communal swimming pools and movie rooms for residents to enjoy.

Each household in the community is independent and fully equipped with its own amenities, including private kitchens and baths. However, the idea behind co-housing is for neighbours to be part of a collaborative community.

Co-housing differs from regular retirement villages in that the community is owned and managed by the residents who live there.

The key benefits of a co-housing community are that residents may have the opportunity to collaborate over how it is set up, what amenities it includes and how much it costs.

Where did the idea originate?

The idea of co-housing started in Denmark in the 1960s. From Scandinavia, the concept spread to other parts of Europe, on to North America, and over to New Zealand and Australia.

Co-housing initiatives are now popping up in many parts of Australia, reinvigorating the concept of community. Seniors’ co-housing has been suggested as an alternative to aged care or retirement villages for those wishing to age in place.

What are the benefits?

Enthusiasts believe co-housing offers the following advantages:

• More meaningful relationships with neighbours.
• A feeling of belonging, in that you’re part of a community.
• Reduces loneliness and isolation by connecting you with others.
• A collaborative culture of sharing and caring.
• Maintenance tasks are divided among the community.
• Decisions affecting the community are based on the consensus.
• You still have privacy, as well as the support of your neighbours as needed.
• Reduces household bills, as expenses for shared space are divided between residents.
• Depending on your community, it may be less expensive than other housing options.
• Reduces your environmental impact thanks to a “greener” approach to living.

An example of a co-housing community in action

Cascade Cohousing in South Hobart is a great example of a thriving co-housing community. Established in 1991, there are currently 22 adults, ranging in age from young families to retirees, and six children living in 15 privately-owned properties (on strata title).

There’s a central common house with a shared kitchen, dining area, lounge, laundry, workshop and TV room. Three nights a week, the residents get together for a meal, and once a month they hold body corporate meetings and working bees for maintenance. There are fun activities on offer like film nights, games evenings and gardening.

You can find examples of other established and emerging co-housing communities on the Cohousing Australia website.

If you’re entering the next phase of life, co-housing may be the way to go. As your mortgage broker, we can help you secure the finance you need to start your exciting new chapter in an existing co-housing community, or even work with you and your chosen ‘community group’ to set one up. Please talk to us at Element Finance about your retirement lifestyle plans and goals today!