Guide to Property Investing in Western Australia
Property is one of the most popular assets any savvy Australian could have. From real estate moguls to mum and dad investors, everybody has a place at the table of building wealth through housing. However, many people end up being overwhelmed or confused by the process - to help you get started, here is a crash course in WA property investment.
Different types of property investment in Western Australia
When you buy a Western Australia investment property, there are two main ways you can set it up:
Positive cashflow property
A positive cashflow investment refers to when rental income you make is greater than the overall expenses of running the house, which includes your home loan and maintenance costs. Therefore, the property operates at a profit, with a decent rental yield (this is income expressed as a percentage of the property's value).
Even so, you'll need to take into account that when values rise, rental yields decrease. This can make it trickier to establish positive cashflow through your Western Australian investment property.
Negatively geared property
This is the opposite of positive cashflow, because a negatively geared property runs at a loss. Largely, this is because the interest on the home loan is greater than that of the rental income. There's little need to panic, as negatively geared property can qualify for tax deductions. Therefore, it's popular among Western Australian investors with the aim of making the most of capital gains. That's because it allows them to manage their investment property at a short term loss, but mitigated by tax breaks. Eventually, long term gains will result from negatively geared property.
This way of operating is currying a lot of favour in Western Australia, largely because values continue to rise, especially in Perth. However, your own investment strategy depends almost entirely on your income.
The team at LJ Hooker Home Loans is available to help you get a firmer grasp of these concepts, and to lend advice on the most efficient way forward for your Western Australian investment.
Financing a Western Australian property investment
There are very few people who will be able to purchase their first property investment in WA without using some kind of credit. This could be from a bank, an independent lender, or even peer-to-peer lending. Regardless of who you choose to work with, it always pays to shop around and make sure that you are getting the best deal.
Mortgage brokers are particularly helpful in this way, though they will have their own set of preferred lenders, so be aware of any biases.
When dealing with any kind of financial professional, you will also need to ensure that they have the appropriate licenses and utilise legitimate business practices to protect yourself and your investment.
If you are refinancing your current home to unlock equity or taking on an entirely new loan to get the capital, it is absolutely imperative to know how your new investment will affect your budget. The Australian Securities and Investments Commission's education site MoneySmart provides a fantastic set of mortgage calculators to help you manage your budget with this new financial commitment.
Tried-and-trusted professionals such as LJ Hooker will help you work out what your repayments are likely to be, as well as provide you with a broad variety of mortgage options.
Finding the right Western Australian investment property
- For a large-scale, unbiased look at the Australian property market, the CoreLogic RP Data Daily Index provides plenty of information to those looking to invest in WA property and investigating the state of the current market.
- SQM Research is home to a database with vacancy rates, so you can figure out where tenant demand is strongest and weakest.
- Our very own LJ Hooker estate agents have an exceptional market knowledge, and can alert you to suitable properties that best fit your financial profile and strategy.
Once you've found the right place for you, it pays to stay abreast of local happenings in the real estate market. This will ensure you don't accidentally buy a dwelling that will end up being a lemon in six months' time. After all, investing in property is about the long haul, and the Western Australia division of the Property Council can keep you updated with news and legislative changes that could have far-reaching effects.
Investment property taxes
When buying for investment purposes in Western Australia, it's important to remember certain duties and taxes that you'll have to pay.
The main one is transfer duty, which the Department of Finance details here. In short, it's a tax levied by the Western Australian government and is based upon the value of the home you are buying. This makes it hugely variable, so be sure to use this stamp duty calculator to figure out what you'll owe.
With a Western Australian investment property, you are also obliged to pay land tax if it is valued at more than $300,001. A property worth this much, or up to $420,000, would incur a flat rate of $300, but this rises the more expensive your Western Australian investment property is. Take a look at the WA Department of Finance's land tax scale to find out how much you'll have to pay each year.
You will also have legal fees, mortgage costs, valuations and inspections to pay for, which can really mount up, so be prepared for these too.
Several notable costs of running a Western Australian investment property can be offset via tax deductions. If you're eligible, this could include property management fees, repair costs, legal issues, and mortgage fees. Be sure to have a read of the Australian Taxation Office's list of tax deductions that can be made when you own an investment property.
Managing a Western Australian investment property
Do it yourself, or use an agent?
Once you've found the right property and the capital to finance it, it's time to make the purchase. However, this is not the end of the story by any means - in fact, you could say this is where your investment truly begins! While you may want to forego the additional workload of being a landlord, you would also be foregoing a revenue stream as well.
However, it is also possible to get the best of both worlds using a property manager, such as one provided by LJ Hooker. The Department of Commerce Western Australia has a great rundown on what it means to be a landlord as well as your relationship with any property manager you decide to take on to assist you.
What to ask a property manager
There are many important questions you'll need to ask a potential property agent before they take over your rental - this is your investment and income source, after all, so you'll want it managed properly.
- How many properties do they manage right now, and how long have they been in the business?
- Are their repairs carried out by themselves, or a contractor?
- How are candidates for tenancy screen and selected?
- How are rental arrears resolved, if they arise?
- What are the fees, and what does this include?
- Is it possible to remain in close contact with the property manager?
Generally speaking, you'll pay an initial fee of between one and four weeks rent, with an ongoing percentage of monthly rent paid thereafter, typically around 5 to 10 per cent.
Your first investment in Western Australia is a great step to make in building your wealth through property. If you have any questions about the Western Australian real estate market and your place in it, don't hesitate to get in touch with the team at LJ Hooker! Whether it's a new piece of real estate or property management, we have the staff and knowledge to assist you develop your Western Australian investments into a real wealth-building portfolio.
The advice provided on this website is general advice only. It has been prepared without taking into account your personal objectives, financial situation or needs. While every care has been taken to ensure the accuracy of the information it contains, neither the publishers, authors nor their employees, can be held liable for inaccuracies, errors or omission. Readers are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice. This information is to be used as a guide only and is subject to change at any time. All information is current as at publication release and the publishers take no responsibility for any factors that may change thereafter.