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June 2008
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You can conquer almost any fear if you will only make up your mind to do so. For remember, fear doesn't exist anywhere except in the mind. Dale Carnegie Welcome message from Damian Collins 
Hello , On behalf of the Momentum Wealth team I am excited to present to you the June edition of Property Wealth News. Yes, it's coming and you can't hide from it. The end of the financial year is nearing and in this month's feature we look at the pros and cons of the popular strategy of prepaying your interest; we also look at some of latest housing data; and, as always, we provide a multitude of hints and tips to assist you with your property investing. Remember, if you would like to speak to one of our consultants about how to improve your current situation or accelerate your investment plans, please call 1-800-000-159 and they will be happy to help and answer any questions you may have. Happy investing,
Damian Collins
Prepaying Interest: Tax Saving or Just Tax Deferral?
With the end of June fast approaching, accountants around the country are busily preparing for the end of the financial year and the inevitable onslaught of work. Property investors are also thinking about last minute strategies they can use to maximise their tax deductions and potentially boost their tax refund. A popular 11th hour strategy used by many property investors is to prepay the interest on their investment loans. But is this really a way of saving tax or just deferring the inevitable? The strategy explained As a knowledgeable Momentum Wealth subscriber you would undoubtedly know by now that interest on investment loans is an allowable deduction. This interest is normally charged by lenders one month in arrears and typically paid monthly by direct debit. Prepaying interest is basically when you choose to pay some or all of the forthcoming year's worth of interest in advance. To the uninitiated this may sound absurd until you realise that by bringing forward the interest payment you are also bringing the deductions forward into the current year's tax return. So in effect you are claiming 24 months worth of interest deductions in one tax return. What are the benefits? The main goal of prepaying your interest is to minimise the amount of tax you pay. But is this what actually happens? It is true that the strategy can be beneficial - but only if you expect to have a higher income this year than you will next year or, to be more precise, if you will be in a higher tax bracket this year than you will next year. To fully understand this idea it is useful to look at some examples of what can cause fluctuations in your income:
Another potential benefit of prepaying your interest is that you may be able to negotiate an interest rate discount with your bank. You are reducing the bank's risk of non-payment and providing the bank with funds that they can then lend out to others so they may be willing to give you a slight discount. A good broker can be very valuable here. Prepaying your interest may also be of benefit if interest rates go up next year - effectively giving a discount by locking in the current interest rate for the upcoming year. What are the considerations? With this strategy, you will be worse-off if you end up being in a higher tax bracket next year. Consider a situation in which you decide to sell an asset next year which triggers a capital gains event and pushes your income into a higher tax bracket. You'll end up paying more tax that you would have if you had not prepaid your interest. An obvious drawback for prepaying your interest is that you must have access to enough cash to do it. Will it come from savings or will you draw from another loan? Wherever the money comes from, it's important to consider the opportunity cost of using the money. For instance, think about how much could you earn by investing that money in, say, another investment property? It is also worth considering that your lender may actually not allow you to prepay your interest and that if interest rates do go down next year you would have effectively locked in a higher rate. Conclusion Although prepaying interest on an investment loan can offer a tax saving, it is definitely not for everyone. In fact, I have seen many occurrences where investors have chosen to prepay their interest only to realise later on that it offered little or no benefit. It's very important to consider whether you will be better off with such a strategy - you should particularly pay attention to how the strategy will impact you next year. It's worth mentioning at this point that when selecting a property to invest in, you shouldn't necessarily be chasing the biggest tax deduction. Focus instead on the quality of the asset and aim for the best capital growth, as it is capital growth not tax benefits that will make you rich in the long term. But that said, if you can minimise your tax liability legally, why wouldn't you? Momentum Wealth and its affiliated entities are not Accountants. While all information is provided in good faith, you should seek your own independent accounting advice in relation to all taxation matters.
The Reserve Bank of Australia (RBA) has left official interest rates unchanged for a third month in a row amid mounting evidence that the nation's 17-year economic expansion is cooling as consumers and businesses cut spending. In a statement that accompanied the decision, governor of Monetary Policy, Mr Stevens, said: "As a result of earlier decisions by the Board, additional rises in market interest rates and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of last year. Conditions in international financial markets, though gradually improving, also remain difficult." "The evidence is that this is helping to produce a moderation in demand. While labour market conditions to date have remained strong, indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly."
The number of residential properties entering the Australian market continues to trend downwards, according to real estate information provider RP Data. The likely reason for the downward trend is that more and more vendors are choosing to wait until selling conditions start to improve before listing their property for sale. Across Australia, there were 12,480 new houses and units added last week, which is around 1,780 less than the twelve month average. The number of total listings however continues to sit above the twelve month average at over 137,000.
Emma, a successful investor in her own right, is one of our Acquisitions Specialists. She has extensive experience working with investors and developers in acquiring residential and commercial properties; and development sites. There are 15 strategies to purchase property below market value. One of these is purchasing stale properties. When a property has been sitting on the market for over a month it begins to go 'stale'. Once this occurs people will start to think that there may be problems with the property. Eventually the property will be classed as a lemon and it will become more difficult to sell. In many cases this happens because the owner has listed the property for more than it is worth. Even as the owner drops the price, the perception that there are problems with the property will still remain. After 3 months on the market the property is now considered stale. The agent would have likely lost enthusiasm and the owner will have become despondent. The three month mark is a good time for the bargain hunter to get to work. For more information on how Emma can help you find and evaluate a great investment property, you can her on 1-800-000-159
Valuation: The final hurdle for finance
In order to get the highest possible level of debt funding, we want to obtain as high as possible valuations whenever we get a valuation on our properties. Ultimately, valuations can affect outcomes and your equity. Why do we want the maximum valuation on a purchase? Firstly we may have purchased the property at a bargain. If we purchased a property and we paid $450,000 and receive a valuation of $480,000... we should be very pleased! The higher the valuation the more lenders will lend to us using the property as security. Often the last and most difficult hurdle for final approval of a loan is to obtain a favourable valuation on the property. By favourable valuation, I mean a valuation that is at the maximum reasonable level for that property. If we have obtained a favourable initial valuation, this should help us when we come to get subsequent valuations. For example, if our initial valuation was $480,000, in one year's time we might find out that the property in that area for that particular type of property has gone up in value ten percent. This can make it possible to refinance your loan to cover the entire purchase price. A valuer cannot, and should not, be expected to value a property at a price higher than it is actually worth. All properties are unique, so putting an exact valuation on a property is difficult. There is a range of prices for any particular property. For example, a property may be worth anywhere from $440,000 to $460,000. What we want to do is convince the valuer that it should be valued at the upper end of the price range. To maximise the valuation on your property, it is important that you provide sales evidence of recent comparable sales to the valuer, so they can understand what is happening in the market in your area. For more information on how Momentum Wealth can assist you with your loan needs, contact Chris on 1-800-000-159 Finance Broking Services are provided by Momentum Wealth Finance Pty Ltd, WA Finance Brokers Licence 3170.
Landlord Protection Insurance: why you need it
Verity, our Property Manager is dedicated to helping landlords achieve a steady income, whilst minimising fuss and maximising the value of their investments. She is a successful property investor herself and demands a high standard from all tenants to help ensure our clients' investments are always well maintained. Despite conducting rigorous background checks on tenants, it is impossible to predict their behavior or foresee changes in their circumstances.It is for this reason that I highly recommend that all landlords should have a Landlord Protection Insurance Policy in place. Many Landlord Protection Insurance Policies will cover both public liability as well as building and contents insurance (contents such as floor coverings, light fittings and window treatments may not be covered by regular building insurance policies). But most importantly, Landlord Protection Insurance may cover any loss of rent resulting from damage caused by a tenant or loss of rent from absconding tenants. There are many policies available from a wide range of insurance providers, each with various features. As each policy will vary, make sure you thoroughly check the features and know what is covered by the policy you choose. Generally insurances are classed as an expense associated with managing your investment property and may be tax deductible. If nothing else, Landlord Protection Insurance will provide you with the peace of mind knowing that your investment is protected - hopefully you will never have to make a claim. For more information on how Momentum Wealth can assist you with your Property Management needs, contact Verity on 1-800-000-159
Get your finances in order the easy way!
Just complete the form and one of our expert mortgage consultants will start comparing your loan options straight away - free of charge and with no obligation! For a limited time if you apply for a new loan, arrange pre-approval or refinance with Momentum Wealth, you'll receive a Set of 10 Property Masters Audio CDs to help you build your property fortune. Visit FreeLoanReview.com.au for more details.
Passionate about property? WE WANT YOU!
Due to the continued growth and expansion of Momentum Wealth, we currently have vacancies for: To find out more please contact Sales Manager, Julia Smith on 1-800-000-159 or julias@momentumwealth.com.au
One of our finance experts, Marcus, was recently approached by an investor whose finances had been structured badly by a broker. The broker hadn't made just one mistake but a series of them over many years, which complicated matters greatly. The investor's loans were unnecessarily cross-collateralised and secured against the client's primary residence. The situation was so bad that the investor was thinking of selling the properties to clean up the problems, which would cost tens of thousands of dollars in capital gains tax. Unfazed by the task at hand, Marcus began the systematic process of untangling the web of loans. And the endeavour proved worthwhile as Marcus was able to vastly simplify the structure, free-up equity and, importantly, allow the investor to keep the properties and avoid triggering a capital gains event. This is a common problem we encounter with clients and sadly for this investor it could have all been completely avoided if the investor had received better advice at the beginning. Marcus is one of our mortgage & finance specialists assisting clients throughout Queensland and Sydney. He is adept at handling the diverse situations and circumstances often encountered by property investors. If you would like to speak with Marcus about your own situation, call 1800-000-159 today.
The Lighter Side of Wealth Building A bit of tax humour to ease the pain of tax time... Two costly questions An investor went to an accountant and said: "If I give you $1,000, will you answer two questions?" The accountant replied: "Certainly. And what is the other question?" Honest sleep A man wrote to the Australian Taxation Office: "I have been unable to sleep, knowing that I have cheated on my income tax. I understated my taxable income and now enclose a cheque for $1,500. If I still can't sleep, I will send you the rest." Investment advice A financial planner suggested to a wealthy client that he should invest in a circus. The client expressed great surprise at such an unusual recommendation: "A circus? Why on earth should I buy into a circus?" The financial planner replied: "Because of the elephants." The client, puzzled even more, then asked: "The elephants? What is the connection between circus elephants and investments?" The financial planner asked: "Well, do you know how much it costs to feed an elephant?" The client, slightly annoyed, responded: "No, of course I do not know much it costs to feed an elephant." The financial planner explained: "Well, neither does the Australian Taxation Office." Freedom of information A man made a Freedom of Information request to the Australian Taxation Office, asking whether there was an audit file on him. A week later he received the reply. It said: "There is now."
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Rates still holding
Chris has enjoyed over 7 years experience as a Real Estate Agent. He is a successful investor himself and has extensive knowledge in all aspects of buying, selling, managing, financing and investing in real estate.
Here at Momentum Wealth, we're always trying to make life easier and more rewarding for our clients. That is why we recently launched 
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