Sometimes investors need to say no to property deals – even when they seem too good to be true.
I work all the time with investors who can’t wait to get into their next deal, but who don’t know quite what to look for.
This was the case with Michelle, who already owned two properties and was considering a third.
The property on her radar was a brand new, one-bedroom apartment plus study in the Sydney CBD. The building was new and very luxurious, with high-end amenities including an on-site gym, 24-hour concierge and rooftop garden.
With the projected rents and depreciation, her 10 per cent deposit and the relatively low fixed interest rate her bank was offering, the property was going to be positively geared to the tune of about $150 a week.
There was also a rental guarantee in place for the first two years.
I’m always wary of rental guarantees, so I looked into the deal and discovered that the projected rents were actually on par with what the market could support. The estimated returns were quite accurate.
Still, I advised my client to walk away from the deal.
Why? Because my client and her husband were a young, professional couple who were planning an imminent move to London.
Living in the UK, they’ll pay British taxes … and all the Australian tax benefits of this deal will mean nothing. The benefits of depreciation, for instance, rely on them being Australian taxpayers.
As a result, property that was returning $150 a week would return very little, as most of the positive cash flow was comprised of tax savings, not genuine rental surplus.
We worked out that Michelle would be better off investing in a low-maintenance house that was positively geared without accounting for depreciation.
She found an established house that returned $80 per week before depreciation and $130 after depreciation, so it was a much more comfortable fit with her plans.
This is a perfect demonstration of why you shouldn’t make investment decisions based purely on the tax benefits. It’s also a great illustration of how one deal could be perfect for one investor, but completely wrong for the next.
This is why you need to create your own personal strategy to guide your investing decisions.
To your success,
Helen Collier-Kogtevs is a bestselling author, educator, speaker and property investor. Her passion for wanting to make a positive difference to people’s lives, inspired her to create mentoring programs that teach people how to retire on $100,000-plus with 10 properties in 10 years or less.