Invest in Property

Considerations when investing in property

1 – Determine the type of property

When a decision to invest in real property is made
the first question an investor needs to ask is
whether to acquire residential, commercial or
industrial property.  Small investors have always
preferred residential property largely because it is
what they know.  Commercial and industrial
property has its advantages; however it is
different to residential property.  Commercial and
industrial properties have different issues to
residential property.

Some of the differences between commercial and residential property include:

  • Commercial leases normally have an initial
    lease term of 3 to 5 years,
  • Residential leases normally have an initial
    lease term of 6 months,
  • Commercial property normally have a
    yield that is around 6 to 8%,
  • Residential property normally has a yield
    around 4 to 6%,
  • Commercial properties are normally more
    expensive than residential properties.

2 – Determine the structure to hold the property

The decision of what type of structure to use is
just as important as the purchase of the property
itself.  The key questions that an investor should
ask themselves include:

  • Will the property be negatively geared and
    who should receive this benefit?
  • Will this property be held long term?
  • What are the land tax costs of holding the
  • Will the property be transferred to
    another entity (i.e. SMSF) at a later stage
    and at what cost?
  • Who or what entity should receive income
    and capital gains in the future?
Selecting an appropriate structure that provides
both tax efficiency and flexibility is overlooked by
many investors and advisors.

3 – Key investment issues when acquiring
a residential property investment

The following are some of the key factors when
selecting a structure to hold a residential
investment property.

  • The land tax definition of owner includes
    joint owners in NSW (i.e. Mum and Dad
    holding property together receive 1
    threshold whereas Mum and Dad holding
    property separately receive 2 thresholds),
  • A residential investment property cannot
    be transferred from individual(s), trusts or
    a company to a self managed superfund,
  • If a residential investment property is
    acquired by a unit trust a self managed
    superfund can acquire units so long as
    certain conditions are met,
  • The issue and redemption of units in a unit
    trust may not attract stamp duty in certain
    States and therefore provide flexibility for
    later movements,
  • Some trusts create unnecessary land tax
    burdens in relation to property holdings

We have many clients who are property investors
and property developers so come visit us in either
Sydney or Melbourne and be assured that you are
dealing with accountants with years of experience
in property accounting, taxation for property
investors and developers. The issues are varied
and complex but at House of Wealth we try to break
through the complexity to make it easier for you.