The easiest way I found to have a look at what’s available on the market was to search on the three major property websites:

1. reiwa.com
2. realestate.com
3. domain.com

All three websites list the property details (address, asking price, agent, photograph/s). But although all three websites are very similar, I found that RIEWA had a layout which made it much easier to see when the property had a home open. Even if you’re not looking to buy, have a look around and see how the property market is around your area, you might surprise yourself.

As well as these sites, most Real Estate Agents will have a website displaying the property they have listed and some property which have recently sold as well. Just take note of which agents sell in the area/s you’re looking and visit their website. You might find something which not many know about!

As for the headache, try to think of your brain as a muscle lacking in exercise =)

Many people come to me and ask: “Is this the right time to buy?” My question to them is, “Is this for investment or yourself to live in?” I find asking this question re-frames their mindset, because many of them will reply: “…Yes, I want to live in it…”

The reason why I ask the question is because most investors would not ask: “Is this the right time to buy?” Instead they would be looking at other factors such as Loan to Value Ratio, Cash Flow, and Return on Investments etc.

Mindset of a property investor

The mindset of a property investor is quite different to that of an owner occupier. An investor would look at their personal finances and whether or not the purchase is sound financially.

The traditional property investors understand the following:

* They are buying mortgages
* They understand it’s about cash-flow
* They are in it for the long term
* They are using property as a vehicle to leverage capital growth

Investors are usually looking for either capital return, cashflow return or both. An investor would not be worried if the property doesn’t look cosmetically nice or if the house has the type of flooring or type of kitchen plans that you like. Instead they would be looking to make sure they house is leasable, repairs if needed, financing cost, undervaluation etc.

Mindset of an owner-occupier purchaser

I’ve spoken to many people who are looking to buy their first ‘home’, a property they want to live in and also make fond memories. I’ve identified several things that I would like to share from our conversations (obviously these are generalisation and may not apply to each and every person).

An owner-occupier will:

* Look through many houses
o Looking for convenience to shops, schools and also their future
o Schools for their kids or future kids
o Close to friends or family
o Something that looks nice, smells good, feels good

* Once they find the ‘one’ they get emotional

o By this time they understand that every property is different and if they let this one go, they might not find another one like it and will regret it for the rest of their lives
o At this point, owner occupier buyers will pay any price for the property

* After they purchase their home, they only do one thing with their mortgage. Owner occupiers will generally repay their debt as fast as humanly possible.
* When property price goes up, they do nothing.
* When property price drops, they do nothing.

Before you go and buy that property, be certain you know whether you are an investor or an owner-occupier.

Last week I wrote about Depreciation Schedule – Where Can I Get One?, I realised that some people may not know what a depreciation schedule is and why you actually want to get one. So I better explain myself…

The dictionary definition for depreciation is: “A decrease or loss in value, as because of age, wear, or market conditions.”

The good news for property investors is that the Australian Tax Office (ATO) allows us to claim this “decrease or loss in value” an expense. The best thing is that we actually didn’t pay for it, i.e. we didn’t have to pay anybody for the “decrease or loss in value”, but we are allowed to claim it! People in the accounting industry call this paper loss since no money actually comes out of the investor’s pocket.

Let me help you understand with an example. I will be using a slightly modified version of my personal transaction:
Property Purchase Price: 370,500
Loan Amount: $359,385
Annual Interest (8.2%): $29,469.57
Annual Rental: $15,600
Water Rates: $800
Council Rates: $800
Strata Rate: $1,000
Depreciation (First Year): $3,000 (This is the number from your depreciation schedule – and will vary from property to property and is dependent on the age of the property and capital improvements that has been done on the property)
Tax Rate: 30% (My Assumption)

If I don’t have a Depreciation Schedule:
Net Income: $15,600 – $29,469 – $800 – $800 – $1,000 = -16,469
Tax Deduction (30%): $4,940.7
Actual Cash Outfow: $4,940.7 – $16,469 = -$11,528.3

If I have a Depreciation Schedule
Net Income: $15,600 – $29,469 – $800 – $800 – $1,000 – $3,000 = -19,469
(used for tax calculation)
Net Income: $15,600 – $29,469 – $800 – $800 – $1,000 = -16,469 (actual
cash out flow – however depreciation does not cost you real cash and is not included)
Tax Deduction (30%): $5,840.7
Actual Cash Outfow: $5,840.7 – 16,469 = -$10,628.3

As you can see there is $900 worth of savings (real money). That’s potentially a short holiday, a new computer, an iPhone, 15 months subscription to Your Success Club, saving to offset your interest paid, the list goes on!

I was talking to some people who owned investment properties last week and I was astonished that even though they knew about depreciation they didn’t know they could actually buy a depreciation schedule. Most people know about claiming depreciation for investment properties, but obviously not everybody knows that you can pay a qualified valuers to get an Australia Tax Office (ATO) approved depreciation schedule which you can used in your tax return. So this post is dedicated to closing this gap!

I have used several companies to purchase depreciation schedule for my properties, this is just the ones I have personally used and this is definitely not the definitive list. Feel free to Google one or ask your friends or even go look through the yellow pages

• Deppro (full service – a valuer will come to your property and calculate the depreciation for your property)
• Tax Shield (budget service, desktop estimates are done, I don’t think an actual real life valuer actually comes on site to see your property. This is better for those older type properties with not much depreciation left, ie. no new renovations or improvement done to the property for decades)
• Local Valuers (full service – a valuer will come to your property and calculate the depreciation for your property. Its usually cheaper than Deppro and those bigger companies, you can find them in the yellow pages or Google)

So if you have an investment property, do yourself a favour and order a depreciation schedule especially if you don’t already have one. You are literally throwing good money away if you don’t have a depreciation schedule.

PS: You can actually negotiate on the price with Deppro (for that matter, with anybody), I told my colleague about deppro and he was smart enough to ASK for a better price. I think he got $100 off simply because he asked! So the question is, are you brave enough to ask?

Property – Buying vs. Renting, this is going to be a simply example that we will step through so that we can see the differences between buying a property and renting a property. The three scenario are below:

Your cash position between the first two scenario is:

You don’t need to be genius to figure out that it is not worth buying a house to live in the given market conditions above (which is quite realistic).

In the third scenario, which is hardly ever talked about in the news, newspaper, magazines, we will uncover a not so common method. First we need to go through some basic when investing in property in Australia.

In this example, an investment house would cost you $30,400 in interest payment and $3,000 expense in rates. With this investment, you will receive an income of $16,000. The net cash loss is $17,400 (16,000 – 30,400 – 3,000), in addition you will also receive a paper loss of $3,000 from depreciation, making your net loss $20,400 (17,400 + 3,000)

This is where things gets interesting, the Australia Tax Office (ATO) allows negative gearing. Negative gearing is basically the ATO allowing individuals to claim losses as tax deduction. So assuming you are on the marginal tax rate of 40%, in this example $20,400 loss x 40% = $8,160. In short, the ATO gives you back $8,160 by making you pay less tax. This mean it only cost you $9,240 (17,400 – 8,160) to hold this investment property every year.

This scenario doesn’t end here, so you buy an investment property and rent it out, which means you will need to rent a place from the market else you’ll be homeless…. Your final cash out flow is $24,240 (9,240 + 16,000) which is the cost of your investment property and renting from somebody.

What does this all mean? The gap between renting for the rest of your life and owning your own dream house is actually not as big as you think. All you need to do is think outside the box and obviously not live in your ‘dream’ home. Just make your rental property your ‘dream home’. Remember the difference between “Buy to Live” and “Buy to Rent then Rent From Others” is $8,160 ($157 per week) this could mean a car, a holiday, better furniture, more expensive rental or if you are like me, another investment property, your choices are limitless.

Property: “Buy to Live”, “Rent Forever” and “Buy to Rent then Rent From Others”

*The above is only an example and different people will have different financial situation, the example also does not include the cost of purchasing the property, such as stamp duty, conveyancing, legal cost etc.