Whether you’re new to property investment or a seasoned landlord, this handy list takes you through 10 useful terms to increase your knowledge.
If you borrow money to purchase an investment property, then make less income (e.g. rent) than you pay in expenses for that property, this is negative gearing at work. In this instance, any net rental loss can be offset against other income, such as your salary, which may reduce your taxable income.
Positive cash flow property
Simply put, this is an investment property that makes a profit. That is, the income you make from the property is greater than your total expenditure on the property. Also known as positive gearing.
Property condition report
A document detailing the condition of property both at the start and end of a tenancy. These are compulsory in Western Australia and important: the property condition report can be used as evidence if there is a dispute about the condition of the property once tenants vacate.
A registered real estate professional who oversees the running of your investment property for a fee. While you can self-manage your property, there are many benefits that come with engaging the services of a dedicated property manager.
The return on your investment – the amount you earn from your investment property expressed as a percentage of the amount you initially invested. Researching and implementing ways to increase your rental yield could increase your cash flow.
A tax incentive that lets you claim tax deductions against the decline in value of your investment property and items within it. A tax depreciation schedule can help maximise what you can claim. Since it’s estimated that only 20 per cent of investors are claiming tax depreciation, it’s worthwhile finding out more.
When buying property in Western Australia you must pay stamp duty, sometimes known as transfer duty, a tax on the property you’re purchasing that varies depending on the property’s value. See the Department of Finance website for more details.
This statistic measures the percentage of properties that are unoccupied or available for rent at any given time. If the vacancy rate is low, this means there aren’t many dwellings available for rent – which favours property investors.
When the market value of your investment property increases over time, this is known as capital growth. From a long-term investment perspective this is key, as it could mean you can sell your property at a profit after a period of ownership. Many factors influence capital growth, particularly as it is often measured across a whole area or suburb.
Capital gains tax
When you sell an asset such as an investment property, you’ll hopefully make a profit – a capital gain. This must be reported on your income tax return in the year you enter into the contract for disposal (not upon settlement) and you’ll need to pay capital gains tax on that profit.
For dedicated property management and expert advice, call the Rentwest team today.