Page 62 - Smart Money

Smart Money

laws and legalities around that, it is definitely worth considering as an
investment opportunity.

Key Point

In order to buy your second home, the best scenario is to have at least
30 percent equity in your current property, so that you do not need
mortgage insurance. A lot of people buying investment property pay
mortgage insurance and that may be claimable on tax. Most people do
it to reduce their taxable income, which is called negative gearing.

To buy a commercial property you generally need at least 30% of the
purchase price plus fees, so roughly 40% equity in your current property
or in cash. For a business expansion, the deposit could be $20,000 or
more. If you want to invest millions, you have got to have at least a 20%
or 30% deposit, maybe more, and if you want to buy a franchise, you
generally need a 40% deposit to invest in one.

If you are using your SMSF, you can generally borrow around 70% of the
purchase price for a commercial property, and sometimes up to 80%,
depending upon the lender. If you are buying a residential property,
I believe it is about 80%, again, depending on which lender you use.
So you need to have 20% or 30% deposit plus your fees in your SMSF.
You also need to be making regular contributions into your super fund;
otherwise you won’t get finance for the property.

The good thing about buying an investment property is that you’re
generally building equity if you are making extra payments on it. But if
interest rates go up, the rent you are getting might not cover as much,
so you might have to make extra payments just to meet the monthly
repayment. It’s the same with commercial properties.

There are a couple of positives to owning a commercial property – you
don’t have to pay for regular inspections because you don’t have to do
them as often, and generally the lease is for five years, whereas residential
leases are usually for only six or twelve months. Tenants are locked into

6