Multiple properties need not translate into tax torture
Owning multiple properties need not necessitate a major burden at tax time, and nor should taxation be viewed as a deterrent to accumulating a sizeable real estate portfolio.
Owning multiple investment properties is the ideal way to build wealth as very few people will generate enough through one property to fund the retirement they desire.
One in ten Australians own an investment property but only one in 1,000 own more than four investment properties.
Part of the reason for that is that many people become stuck at the hurdle of the first property and don’t manage to replicate their investment strategy to buy more properties and generate wealth.
For some it’s because they buy the wrong property, something in the wrong location or use the wrong team to help them and end up working so hard it puts them off continuing to grow their portfolio.
The work involved in owning ten investment properties shouldn’t be any different to the work involved in owning one, particularly when it comes to tax time.
It’s all about establishing the right team from the outset and working smarter (rather than harder), which means paying what it costs to assemble a team of professionals who are experts in what they do and can do the heavy lifting.
Many investors start out thinking they can save a few dollars by managing the property themselves. This is generally a big and often costly mistake.
Aside from property management fees being a tax deduction, a good manager will ensure they find the best tenant possible for your property without any hitches.
They can properly vet applications, deal with any tenancy issues (like trying to find a plumber on a Saturday afternoon because the tenant has called about a broken tap), and they can pay all the bills out of the rent.
This includes rates, insurances, maintenance, and pretty much every outgoing aside from the interest on the mortgage.
They will do regular inspections and can get on top of issues as soon as they occur.
Doing this means owners will not be chasing receipts come tax time, and just need a document from the property manager showing all rent and expenses, a depreciation schedule and of course a statement of interest payments.
Developing a relationship with a good mortgage broker is also essential (and the bonus is their service to the client is free).
Big Four or many small?
Most investors make the mistake of just going to one of the so-called big four banks when it comes to borrowing.
While that’s not necessarily a bad idea, a good mortgage broker will do all the hard work and hunt out the best deal and loan structure for your circumstances. They are across many different lenders, not just the major banks.
Poor structuring of the first property investment can often become restrictive when trying to attain number two or three.
Whether a banker or a private broker, it’s important to find a professional with experience who is up to date with what is happening in the market and is looking after your interests.
A good accountant is also necessary and it needs to be one that understands property investment. The rules around tax deductions on property are constantly changing.
Investors can achieve significant tax deductions, but it can be difficult for an owner to be across it all, which is where the accountant comes in, maximising your returns.
And once again, their fees are claimable.
The Australian Taxation Office says about 70 per cent of Australians do not claim all their allowable tax deductions. A good accountant will help ensure you are not one of them.