Investment Property - NSW Regional (Do's and Don't)

jimmy1593 on 25/07/2024 - 15:43
Last edited 25/07/2024 - 17:27 by 1 other user

Hello community, Looking to purchase my first IP to save some taxes (currently paying ~4k in taxes each month)

I've considered apartments around western Sydney (St Mary - Penrith) but have been advised time and again to go for house as it's gonna be more profitable in long term

Budget is around $450k, so I can either go for apartment near Penrith area or house in regional (some areas I've considered are Bathurst, Lithgow)

Another point to highlight is - I'm in Sydney, so may not even visit to have a look at property and would rely on images posted by RE agent, is this safe to do?

Thanks in advance

Financial

Comments

  • barge-in hunter on 25/07/2024 - 15:54
    +46

    We're in a housing crisis and…

    Looking to purchase my first IP to save some taxes

    Australia's taxation system is broken

    • HeWhoKnows on 26/07/2024 - 14:35
      +2

      OP is paying $48,000 each year in taxes so OP is earning around $150,000
      Yet OP's budget is only $450,000.for a property?

      Usually you work on about 4x to 5x salary.
      OP should consider properties $600,000 to $750,000.
      That will give OP a much better choice and possibly purchase a PRIME property in Sydney instead of a "fringe" one.in a regional area.

      I can tell you that most NSW regional areas are lagging well behind Sydney both in capital growth and in rental growth.
      Thats a double whammy loss mate.

      I think you need to get your investment priorities right

      Its not all about tax OP
      First and foremost, You want to maximise the return on your investment.

      Take note of what Muzeeb says as aell.

      • sumyungguy on 26/07/2024 - 14:38

        More like $170K

      • Noblejoker on 26/07/2024 - 14:58
        +4

        Respectfully disagree with maths
        A good $450K house in a regional town may easily attract $500-$600 / wk rent
        A $750K property may attract slightly higher rent but not double
        And I am not sure what a 'prime' property is or where in Sydney one can buy said property for $750K

        TLDR - purchase price and/or location does not equal rental return ROI

        • alz on 27/07/2024 - 13:54
          +1

          Which regional towns offer what you are talking about please ?

      • miwahni on 27/07/2024 - 00:12

        Without knowing OP's financial position re existing debts / number of dependents etc you can't just state a blanket amount 4x to 5x salary. And the amount of deposit available can also affect purchase amount.

    • boomramada on 27/07/2024 - 09:32
      +3

      Definitely not broken, if you gave that money to government, they probably end up buying a another sub.

    • duluxe2000 on 27/07/2024 - 11:37
      +1

      Yes, Australia tax is broken because it's taxing not-so-high income earners too high. For someone earning 150+, they are less motivated to achieve higher tax bracket but rather spend energy to minimize tax, weather it's negative gearing through IP or other means…

      • dassaur on 27/07/2024 - 13:40

        I dont think you know how the tax brackets work.

  • MS Paint on 25/07/2024 - 15:57
    +39

    You do realise you don't just magically save on your income tax. There's a shit tonne of outgoings to manage an IP then a whole new set of taxes eg land tax, cgt.

    Negative gearing relies heavily on capital growth to make it worthwhile.

    • Gunnar on 25/07/2024 - 16:36
      +18

      How dare you challenge first time housing investors with such myths!!! You buy your IP, negative gear, and then just talk about the profit!

      But OP before you do anything you need to work what you want to do with the place in the short, medium, or long term

      Short term tax dodge? Stupid idea

      Medium term? Possibly a good idea, get something that will be high growth and pray it works out (thankfully based on the Australian housing market over the last few decades it probably will)

      Long term? Yeah do it, wise idea but be prepared that you will have outgoings, it’s not a cheap exercise though

      • ribze1 on 27/07/2024 - 20:15
        +1

        Buy IP, yada yada yada, profit

    • jimmy1593 on 25/07/2024 - 18:38
      -8

      Just like everyone else - main aim is to get some growth and build portfolio haha

      I really didn't like the negative gearing concept unless I am thinking to try it out myself

    • nigel deborah on 27/07/2024 - 11:20
      +1

      You do kind of magically save on your income tax as long as you buy a new build freestanding house. Depreciation on the house itself knocks massive chunks out of your taxable income with no actual expenses incurred.

      Negative gearing on actual negative cash flow is not what's broken, and you're right, is relatively minor.

  • Duckie2hh on 25/07/2024 - 15:58
    +3

    would rely on images posted by RE agent, is this safe to do?

    no chance.

    • jimmy1593 on 25/07/2024 - 18:38
      -2

      I've heard peeps investing areas which they haven't seen on map, needs a big courage though

      • Duckie2hh on 26/07/2024 - 07:54
        +1

        Yes… Use a buyer's agent to go and see the remote property, organise building and pest, etc.

  • AustriaBargain on 25/07/2024 - 16:09
    +8

    Invest in a hotdog stand or something.

    • Gunnar on 25/07/2024 - 16:27
      -1

      LMAO

    • mskeggs on 25/07/2024 - 16:40
      +21

      There's always money in the banana stand.

    • ribze1 on 27/07/2024 - 20:16

      It put my kids through college

  • JDMcarfan on 25/07/2024 - 16:11
    +5

    1. Don't buy to save taxes. Buy for wealth generation and use the tax breaks to assist your financial position

    2. You live in Sydney, invest a couple thousand dollars for fuel/accommodation (learn to camp to save $$) and be willing to visit any property in person or don't at all.

    3. 450k is not a lot of buying power. Putting that into a house will likely mean the house is lacking maintenance (I'm generalising) but factor costs to fix. Beyond what you can afford for a deposit + stamp duty, you should have a spare 50-100k available for repairs in the first 12 months. This applies more for a house than a unit (I'd keep 10-20k spare for an apt)

    4. You say you live in Sydney. To save taxes, you should buy a first home and live in it for the first 6-12 months (6 months for just the Main Residence Exemption for CGT, 12 months for both MRE and FHB assistance/Stamp Duty waiver). Considering a need to commute to work and price point, a Western Sydney apartment would let you live in it for 12 months, and thus allow you to claim both benefits, whilst one in the regions wouldn't.

    5. If you follow through with 4. you can still get an IP loan whilst living in it for 12 months. You do not need to state this to the bank (can tell a mortgage broker) and need to tell your solicitor that the property will be a primary residence. Once the loan has settled you can call the bank and have the loan converted to an OO to save some interest. If you do intend to live in it for 12 months, then consider your ability to afford for 12 months without rental income.

    6. In the regions, you need to look at public infrastructure/development to pick a good location. Are they building a train line/hospital in the area that will drive growth? You need to do more research pre-investing and cannot rely on the big city allure as easily.

    7. Banks will be more conservative with lending/valuations on a regional property vs. Sydney (or other capital/major regional cities) as potential losses in in a default situation are higher. You may find they may cap LVR or have a different interpretation of value (compared to the contract price), for which you'll need to front the difference.

    Personal opinion, if not buying an apartment locally, I'd be looking at larger regional cities' interstate before ones in NSW

    • jimmy1593 on 25/07/2024 - 18:42
      -4

      To save taxes, you should buy a first home and live in it for the first 6-12 months (6 months for just the Main Residence Exemption for CGT, 12 months for both MRE and FHB assistance/Stamp Duty waiver).

      I've already bought my first home and claimed the HGS and Stamp duty exemption, so this won't apply

      • JDMcarfan on 25/07/2024 - 23:01
        +5

        you've asked for advice but left out quite critical information.

  • Dollar General on 25/07/2024 - 16:14
    +8

    Negative gearing means you are spending $1 to get 30 cents or 40 cents back. Unless there’s decent capital growth, you are going backwards

    Depending on your age, you can make concessional contributions to super up to $30K (incl employer contributions) and claim on your tax

    • jimmy1593 on 25/07/2024 - 18:43
      -2

      Depending on your age, you can make concessional contributions to super up to $30K (incl employer contributions) and claim on your tax

      Yeah I do that already but still the outgoing taxes are huge

      • DashCam AKA Rolts on 26/07/2024 - 09:20
        +5

        Yeah I do that already but still the outgoing taxes are huge

        Get a job that pays less?

        • ribze1 on 27/07/2024 - 20:17

          Yep OP should just quit so he can pay no tax.

    • nigel deborah on 27/07/2024 - 11:25

      Why is this misconception so common?

      Yes, that's how negative gearing can work if we're talking negative cash flow.

      But you can negatively gear hypothetical depreciation on the physical house itself. This means ultimately writing off the full build cost over a period of X years with no expenses incurred (besides initial purchase of course). Then after you've written off 100 percent of the build cost on your income, the property as a whole as actually appreciated. You might also be able to maintain positive cash flow this entire time.

      Buy enough homes and you can pay almost zero tax - this is why you hear about hot shot lawyers / finance people having 10 plus IPs to write off their entire income with depreciation.

      It's the above that's broken and incentivises bulk IPs for high income earners.

  • Meho2026 on 25/07/2024 - 16:27
    +1

    You dont need to go as far out as Penrith to buy an apartment for $450K.

    A house will generally increase in value more than an apartment in a city but that doesnt necessarily make apartments an inferior investment, other factors come into play.
    You could quite easily make a greater capital growth from a city apartment than a house in a regional area because its usually the scarcity of land driving prices.

    If your strategy is to negative gear to make tax deductions then you need to focus on capital growth. So you need to look at factors that drive growth. That means researching areas and looking at things like, employment diversity, local council future plans, population predictions, infrastructure investment, public transport, schools, parks etc.

    Never buy anything sight unseen, if you dont have the time or motivation to actually go and inspect properties then maybe consider alternative investment vehicles.

    There are many people who have bought property, especially in Sydney, without having a clue and have done very well but others havent been so lucky. The questions you are asking demonstrate that you need to read up and improve your education on property investment before you buy.

    • jimmy1593 on 25/07/2024 - 18:44

      Thanks for the info

    • Agret on 25/07/2024 - 19:57
      +2

      Problem with apartment as an investment is strata and building fees. Things like elevator maintenance can be a big unexpected cost, a lot of people suggest buying older apartments without elevators / no amenities to cutdown fees.

      • jimmy1593 on 25/07/2024 - 22:41

        Agree if I buy an apartment it's gonna be a pre 2000 built with less number of units in the block

  • JIMB0 on 25/07/2024 - 16:34
    +22

    I'm saving a fortune on taxes simply by working less hours and therefore earning less money. It has the added advantage of more time to do the things I want to do. Win win situation.

    • AustriaBargain on 25/07/2024 - 16:41
      +2

      Yeah, OP could negotiate getting every Friday off or whatever so every weekend is a long weekend. How sweet would that be.

      • Minimum chips on 27/07/2024 - 08:52

        I get the appeal of this, but I have to stump for Thursdays off.

        You do a 3-day initial work week, then get a mini-weekend on a day when Shops close late. Then you only have to go in for Friday (which is generally a chill day) before you get the full weekend.

        Obviously not ideal if you want to travel, but I love it (10hrs other days, still full time).

        • miicah on 27/07/2024 - 10:32

          Wednesday was perfect for me. Two mini work weeks and three weekends.

    • mskeggs on 25/07/2024 - 16:43

      Winning move. A good way to live life, rather than seeking extra hassle and risk "to save taxes".

    • jimmy1593 on 25/07/2024 - 18:45
      -2

      Wish I had that flexibility but it's 5 days a week with no negotiations

    • Gunnar on 25/07/2024 - 21:47
      +2

      Ah! You didn’t do what Donny Don’t does

  • firestormx on 25/07/2024 - 16:57
    +2
    1. Property is pretty hands on. Do not expect to put in some money, appoint a property manager and sit back. It is not equivalent to savings account or an index fund.
    2. You will need to deal with maintenance issues and tenants. Sometimes, for major things you might even have to organise your own trades.
    3. Trades provided by your property manager might not be the best and can be quite expensive, so you might need to organise your own trades and go on site yourself per point 2.
    4. In my opinion, the property should be located in an area you can reasonably visit yourself. Often, you will need to visit to "go and see for yourself", rather than rely on the PM.
    5. Apartments often have lower capital growth, and looking at the stories of how a lot of them are constructed, they seem to be a bad deal.
    6. Under no circumstances should you ever buy a property sight unseen. Lots of crucial things get missed even when buyers go on site to inspect. Would you buy a $5,000 second hand car without personally inspecting it?
  • sumyungguy on 25/07/2024 - 17:07

    I know an investor who says they make good money from super-hosting on Airbnb. You should at least select an apartment building where short-term letting is permitted to keep this option open. Sadly this only worsens the housing shortage. If however your super balance is below $500K there's some low hanging fruit that needs picking.

    • JIMB0 on 25/07/2024 - 17:15
      +6

      They're not doing it to make money, they want to lose money and pay less tax.

      • sumyungguy on 25/07/2024 - 17:41

        I think the apartment is positively geared with deductible outgoings, depreciation and loan interest. So maybe no net tax benefit but OP still gets richer.

        • supersabroso on 26/07/2024 - 22:34
          +2

          It's been proven that unless you know what you're doing or luck out, odds are, you're better off investing in the stock market than buying an apartment. You get minimal capital gains and don't get to take advantage of much negative gearing. Where as, if you buy a house, you're pretty much set unless you're really unlucky and buy a dud that's sinking/falling apart. Either way, you're right, OP will get richer. It's better than leaving your money in the bank and paying 50% tax on the interest you get.

  • bmxr on 25/07/2024 - 17:55

    This has to be a troll post.

    purchase my first IP to save some taxes

    You don't purchase an IP primarily to save on tax. The best IP is one that is positively geared and achieves capital growth. Look at other tax minimisation strategies if all you want to do is save tax.

    so may not even visit to have a look at property and would rely on images posted by RE agent, is this safe to do?

    Have a look at this gold mine of a thread; https://forums.whirlpool.net.au/thread/3vnpy8w3 102 pages of useless (sometimes criminally misleading) real estate photos. You're welcome.

    • supersabroso on 26/07/2024 - 22:48
      +1

      No it's legit, everyone knows that negative gearing whilst waiting for juicy capital gains where you only need to pay 50% of the standard tax rate is how you get rich. If you are rich enough to purchase a property outright and you pay taxes on it, you miss out on the power of leverage as you could have potentially made 2x-5x as much money.

      Eg. Buy a $1M apartment outright, get $40k income/annum, pay $20k in taxes = $20k profit/year or $750k capital gains + $200k = $900k of profit (after tax) after 10 years. OR leverage your $1M with a mortgage to buy a $5M house, lose only $40k/year due to negative gearing instead of your actual $80k/year loss, sell it for $10M and pay only $1.15M in taxes, saving you $1.15M due to the capital gains discount. Now you've profited $3.65M - $400k in losses over 10 years bringing your total profit up to a humongous $3.25M (after taxes). This is why the rich get richer and the poor stay poor as they are rent slaves to the rich.

      We really need to abolish unlimited housing purchases as an investment vehicle. Houses are for people to live in, not for people to get rich by enslaving others to be their rent slaves. If the government can't manage this, there will be a civil war, just like in China when the poor majority overthrew the rich minority.

  • SBOB on 25/07/2024 - 18:13
    +3

    currently paying ~4k in taxes each month)

    So, ~$160k/yr to be paying about 48k/yr in tax(rough numbers)

    Easy tax savings without random rural property investment (very rough numbers)

    • private health insurance if you don't have it. You're currently paying $2.5k in Medicare surcharge, and you can likely find a trash option that's cheaper than that.
    • super contributions. Automatic tax saving of 22% on contributions up to 30k. Additional 10k a year is ~$2k tax saved.
    • educational courses or accreditations related to your job, tax deductible and likely result in a decent ROI on future earnings.

    If you aren't doing some or all of these first, you should be tackling low hanging tax reduction fruit before what is likely a more effort/risk/hopeful cap gain rural area if you're buying a house/land for 450k

    • jimmy1593 on 25/07/2024 - 18:49
      -1

      private health insurance if you don't have it. You're currently paying $2.5k in Medicare surcharge, and you can likely find a trash option that's cheaper than that.

      Thanks will make note for this

  • dtc on 25/07/2024 - 18:33

    with all the cutback on international students, apartment rents are crashing in sydney and Melbourne. but that may only be short term I guess. Maybe

  • DingoBilly on 25/07/2024 - 19:47
    +1

    Why not just spend the money and enjoy it?

    Worse case scenario, just chuck more money into etfs. Nothing wrong with paying tax and investing into something simple with good returns. At some point you have to pay tax.

    • CocaKoala on 27/07/2024 - 10:35

      God forbid we give back something to the society.

  • Drakesy on 25/07/2024 - 19:57

    Gotta spend money to lose money :)

    Maintenance of a rural property is not cheap.
    Rates
    REA fees
    Insurance
    No guarantee of rental yield - only good up until people reach their affordability ceiling, rural areas are highly volatile.

  • pharkurnell on 25/07/2024 - 20:07
    -1

    Mate has moved to Goulburn and bought a unit to live in… Looks old on the outside but real nice inside now hes painted it, new carpet, window shutters…
    had it valued its gone up 90k in just over a year… only paid high 200's for it
    hes now looking at a rental down there too

  • afah0447 on 26/07/2024 - 09:25
    +2

    Yet another Aussie looking to pump up real estate prices. Property investment is killing this country. It's unproductive.

    • jimmy1593 on 26/07/2024 - 14:07
      -3

      Prices are already pumped up, not able to find anything suitable in my price range

  • 2esc on 26/07/2024 - 17:28

    Depends on how much of the Greens plans with investment properties occurs they were talking about earlier in the week to combat the housing crisis.

    Depending on the next election and if a minority government occurs its something they were pushing.

  • SydBoy on 27/07/2024 - 06:12

    House is not just about profitability but it won't be as dodgy as strata manager and dodge western Sydney builders !

  • Typical16-bitEnjoyer on 27/07/2024 - 08:44
    -1

    Abolish. Negative. Gearing.

    Also lol at another clueless wannabe slumlord post that doesn't even understand the basics. Buy shares or something bro.

    • The Wololo Wombat on 27/07/2024 - 11:52
      -1

      Negative gearing exists for everything… not just propety.

      • Typical16-bitEnjoyer on 28/07/2024 - 11:23
        -1

        It doesn't. Anyways "negative gearing" shares or ETFs has no material benefit does it? Negative gearing property does, and that's the problem.

        • The Wololo Wombat on 28/07/2024 - 14:19
          +1

          ?? If you make a loss with any other investment, the loss counts against your income tax.

          There's plenty of non-property investment scenarios where you make a cash flow loss, but a capital gain that is only taxable when you sell. I'm not saying property isn't potentially lucrative in AUS… but negative gearing being the cause of this is only something that people who don't understand property say + what I said about it applying everywhere is correct.

          • Typical16-bitEnjoyer on 28/07/2024 - 16:27
            +1

            @The Wololo Wombat: Don't be dense. None of those other options provide anywhere near the beneficial capital gain to offset claimable loss that property can provide in Australia. Not even close.

            My point stands.

  • The Wololo Wombat on 27/07/2024 - 11:57

    I have 9 IP and 1 PPOR.

    I think the best way to invest in property is to build a dual key, or, buy and existing property and add a secondary dwelling (often cheaper). This is possible in your budget in many regional areas.

    This strategy increases the supply (helping to solving the crisis) and the your own cash flow too. You can easily get ~9-11% yields in areas that are usually only 5-6% with this strategy.

    While new builds, there's also more that's depreciable saving on tax (talk to a quantity surveyors to get a depreciation schedule) and you come across as needing to know ALOT more before you start investing. Start listening to podcasts instead of tiktok/instagram spruikers.

    If you want to go BIG in property (ie, bigger than me, 20+ properties) you should speak to someone who can set up a company + trust structure. Otherwise, as you grow, it's hard to borrow more than $2.5m without this.

    Also, propertychat.com.au is better than Ozbargain for these questions.

    • jimmy1593 on 27/07/2024 - 13:34

      Thanks mate you are legend

      • The Wololo Wombat on 28/07/2024 - 14:22

        No worries mate. PM me if you have a deal you want me to give an opinion on, before you pull the trigger.

    • x x on 27/07/2024 - 13:53
      +2

      propertychat forum has gone to shyte because of the guy who runs it. He ruined that site after the Somers' gave it to him for free with his over the top moderating and all the advertising. It's now an echo chamber with about 40-50 regulars who make 98% of the posts. Better to visit Reddit which has much better quality posts in their property investing subs.

      • The Wololo Wombat on 28/07/2024 - 14:17

        Thanks for this! To be fair, I've not been an active user for years.

  • alz on 27/07/2024 - 13:52

    What areas are looking at OP?
    I might get me some of the regional $450k properties with the $500 a week rent. I can only afford to borrow for one.

    • jimmy1593 on 27/07/2024 - 15:54

      There's hardly anything that would fetch you $500 a week if you get it for 450k.

      Areas are a lot but depends which one grows - I've got Goulburn, Lithgow and Tamworth on my mind

  • Franky23 on 27/07/2024 - 14:01

    St marys and penrith are terrible choices for an apartment as they are popping up everywhere. If you ever decide to sell there will be minimal capital growth and no scarcity in the market.

    For an apartment I'd go to a highly desirable area where there aren't many apartments. But it may be beyond your budget. A house on a good block of land in St marys and penrith would be great considering the council has become so loose with subdivisions.

    I think it's great you want to invest and better your position - A few too many naysayers here. You do however need to speak to a financial advisor and mortgage broker who may be able to offer flexible lending options

  • chinesefood on 27/07/2024 - 15:28
    +1

    Don't buy apartment for capital growth

  • justworld on 27/07/2024 - 16:17

    1. Get a depreciation schedule so you can take advantage of deductions on depreciating items (no real cost to you but you save on income tax in the present while deferring the capital gains hit for when you sell)

    2. Get a good property manager - ask your friends who have IPs for suggestions. Not sure what NSW rates are - in VIC a PM should be costing you 5.5% of rental income

    3. Vet your tenants carefully - look for professional couples or young families. Avoid anyone for whom the rent would be more than 25-30% of his/her household income. Avoid anyone without references. Don't necessarily pick the first one your agent puts up as an option as agents are incentivised to do as little work as possible.

    4. Offer only a 12 month lease. As landlord your power is in being able to limit lease terms. You can raise rent once every 12 months so it makes sense to coincide lease renewal with rent increase; you have more market power that way.

    5. Do your own homework on market rents. Agents sometimes overpitch or under-itch.

    6. Join one of the landlord chat groups on Facebook - quite handy hints on there, and you don't have to deal with the usual (profanity) comments you see on a forum like this ("housing crisis how dare you steal mah house blah blah blah")

    7. It's disadvantageous to hold more than one property in each state because of the way land tax works (it's progressive just like income tax) so next time either buy property in another state (avoid Victoria as the landlord rules here are more draconian) or buy property in another name. If your parents do not own property you can buy in their name, or your partner's name, or otherwise just buy interstate to spread the land tax burden.

    Most of the posts in this thread are bullshit sniping or something other than actual tips for OP.

    • jimmy1593 on 27/07/2024 - 23:23
      +1

      Thanks heaps that was really helpful for me

  • stopthecap on 27/07/2024 - 20:37

    scumlord coming up

  • furyou on 27/07/2024 - 22:39

    Get financial advice. IP sux unless ur already rich.
    Crap tenants, damage, lost rent, then CGT means you pay back most of what you -ve geared.

    Also be demonised as a landlord.

    Put it in shares or sth more divisible.

  • shangoz on 28/07/2024 - 11:47

    Bit scary to touch unit or apartment at this time hence a lot of them face sinking fund dry up and need all owner top up between 60k to 90k for repair bills, so do your market research first, wide open your mind including Tasmania and Canberra plus Adelaide house etc.

  • Snax85 on 20/12/2024 - 22:42

    Given your budget and long-term goals, a house in a regional area like Bathurst or Lithgow might be the better option, as land value tends to appreciate more than apartments. That said, buying sight unseen carries risks—consider hiring a buyer’s agent or at least a local building and pest inspector to ensure you're not relying solely on the agent’s photos.

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