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FAQ
Property Investment
Q. What is negative geared property?
A. The term negative gearing refers to a situation where your expenses to maintain an income producing property exceed the income of the property itself.
Q. How can I overcome this loss?
A. The difference between the amount of rent for your property and the expenses related
to the property are (assuming there is a loss) tax deductible. There is also provision
for non-
Q. How do I claim a tax deduction on my rental property?
A. There are several ways, depending on your employment status. For instance, if you're a PAYE wage or salary earner you could arrange for your employer to deduct less tax from your pay every pay period. Alternatively, you could simply receive a lump sum rebate at the end of each tax year.
Q. Do I have to go into debt?
A. No, you don't. However, in order to make optimum use of your income level and tax liability, using debt is the best way to purchase a rental property.
Q. What about rising interest rates?
A. When taking out a loan from a bank or building society, you have the option of staying on at a lower variable rate of interest or paying a slightly higher interest rate and having it fixed for up to five years.
Q. What if I become unemployed or too sick to work?
A. Your loan should be set up with a 3-
Q. What if my property is damaged?
A. All the major insurance companies offer comprehensive policies, which cover most forms of damage. The costs are minimal and tax deductible. There is also 'Landlord Protection Insurance' to cover malicious damage and loss of rent.
Q. What if the property is vacant?
A. Vacancy is mainly caused by the amount of rent being asked, location of the property and condition of the property. Don't be greedy. Reduce your rent or offer one week free. The property should be located close to transport, shops, schools and employment. Have good property management.
Q. Who manages my rental property?
A. Property managers today are generally highly trained and qualified individuals who form the backbone of the real estate industry. They need to be researched to ensure quality of service.
Project Management
Q. I have never owned an investment property before, let alone developed!
A. Maxim has helped many clients with no prior investing experience to develop a portfolio of investment properties. Maxim takes a step by step approach to explain the various types of loans, ongoing cost of ownership, depreciation, investment strategies and the entire development process. By the successful completion of the project, novice investors have a complete understanding of how to maximise their properties returns and a thorough understanding of their tax position. (Note: tax advice is provided by independent accountants).
The great strength of developing is the lower cost of ownership (you own two/three properties but only pay stamp duty on the development site) and the lower total loan amounts due to the development profits. Subsequently, the cost of ownership is usually significantly less for a developer than for an investor who buys one of the completed units. This is what we mean by owning "wholesale" investment properties.
Q. Is property development a risky investment?
A. All investments have risk associated with them and this type of investment is no different. However, a definition of risk needs to be identified to allow an answer to this question to be given.
Risk can be defined as the exposure to potential loss of capital, or as a calculation used to determine an acceptable rate of return for your investment. All projects are thoroughly researched prior to you committing financially to a project. The research identifies all of the key areas which form the structure of a successful development. Although not a guarantee of future success, by following this strategy, every development project managed by Maxim has returned a profit.
Risk is further enhanced through inexperience and a lack of understanding of the process involved. By engaging experienced and professional project managers with a proven system, risk is significantly reduced. Perhaps a more pertinent question in this regard is "Can I afford not to have a project manager?"
Q. Are villas, townhouses and apartments better than houses on large blocks as property investments?
A. Yes, because they do not have a high land content, your tax deductions are greater.
You cannot depreciate land. In many instances, owning two or three new units or townhouses
will actually have a lower weekly cost of ownership than the cost of owning an old
house on a development block. Prior to your project commencing, Maxim will provide
an in-
Q. I don't think that I can afford to develop.
A. It is a common misconception that you need a lot of equity or a large income to
develop. We can show you several simple options for you to affordably gain development
funding approval. With our in-
Q. I don't think I can afford to own several new units.
A. If your sub divisible block or investment property is negatively geared, it will more than likely cost you less to own two units than it already does now. We explain how to take advantage of all the available benefits new property offers.
Q. I can't afford the interest during construction.
A. As construction loans are broken into several draw down payments, you only pay interest on the full loan amount near the completion of the building. Interest is actually very affordable in this form and will be significantly less than you think. If you have equity available in your home or investment property, Maxim can assist with establishing a line of credit to meet your interest repayments. This way, you are making your repayments from a fully tax deductible loan and not from your weekly income. Maxim will also provide a cash flow analysis and budget to ensure you have enough available funds for the life of the project.
Q. How much will it cost for Maxim Project Management to manage my project?
A. Maxim's service is unique and quite different to "standard" project management. Many project management companies only manage the construction phase of the project. At Maxim, we are with you from the very beginning. We assist with locating the land, completing research, designing the development, tendering the plans, assessing the tenders, obtaining council approvals, colour schemes, overseeing construction, setting selling strategies and ensuring the investment properties are geared to received a maximum return. As can be seen, it is total development project management service.
Our fees are based on a percentage of the project's hard costs. As each project is different, it is not possible to apply a set fee to a particular type of project. For example, there is a huge difference between a triplex villa development in Gosnells and a waterfront triplex townhouse development in Scarborough. Both are triplexes, but vastly different.
A proposal for the cost of our involvement is provided to you before you commit to a project. The fees are broken down over three stages and clearly explained.
Q. How much capital do I need?
A. Naturally the greater the base amount of capital you have, the more projects you will be able to complete, and the greater the potential income to you.
Many of our clients have existing equity in their home or other investment properties
which can be used to fund a property development. The most convenient way to assess
your available capital and total funds required for a project is to visit a mortgage
broker. Maxim can refer you to mortgage brokers who have an in-
Development funding is entirely different to a standard investment loan, so it is essential you see a mortgage broker who understands development funding and the products available. Should you have a funding shortfall, depending on the project, Maxim can help with finding other investors to contribute to your project.
Q. Who owns the property I develop?
A. All property developments are owned by the investor at all times until sold.
Q. Who will sell my investment property once it is completed?
A. You have a choice of using the services of Maxim division or an experienced local Real Estate Agent. Maxim Project Management works closely with dozens of agents across Perth who are all highly experienced in selling unit developments and can recommend a proven agent to you.
Generally, we find professional real estate agents generate the highest sales. We do not recommend investors selling the property themselves.
Q. How long will my development take to complete?
A. Depending on the size of your project, a typical single level group dwelling can be completed in 28 weeks from date of commencement of construction. Two level group dwellings (townhouses) can be completed in 52 weeks from date of commencement of construction. Prior to construction, it normally takes up to five months for the plans to be designed and full building permits to be issued.
The overall time from conception to completed sale can be a reasonable process as the construction industry is very busy at present. The potential profit outcomes provided in the projects feasibility study allows for this period of time in relation to interest repayments etc. It is worth noting that nothing worth doing is achieved overnight!
Attempting a development on your own will generally take significantly longer than the time frames mentioned above. Maxim Project Management has an experienced network of surveyors, designers, builders, real estate agents, depreciation experts, council planners and an extensive understanding of the development process. The net benefit is an efficient development process without going through a lengthy and costly trial and error approach.
Q. Where will my developments be?
A. Maxim Project Management can help you find a suitable development site in a suburb displaying the characteristics that suits your investment strategy. Before doing so, we like to assess your current financial position so we can identify those suburbs that meet your personal budget.
Q. Can I choose my own builder?
A. As project managers with years of experience, we have formed strong relationships with a proven network of quality builders. The advantage of this for our clients is the removal of the "what if" factor of an unknown builder in terms of construction times, quality, pricing and the all important working relationship.
Additionally, in these busy times, many builders prefer not to take on new work from clients they do not have an existing relationship with. Subsequently, many prospective developers are finding it difficult to obtain realistic construction quotes.
Q. What guarantees do I have that the building will be completed correctly and on time?
A. The builders are fully licensed and appropriately experienced contractors who
meet all government and semi-
Q. What happens if the builder goes broke?
A. Under Western Australian law, construction cannot begin unless a certificate for
indemnity insurance has been issued. Indemnity insurance provides insurance protection
against non-
Q. Do I need a building licence?
A. No. As an investor you do not need a builder's licence. Your developments are built using licensed builders who meet statutory requirements. Maxim will either directly arrange all of your council approvals or do so in conjunction with the builder.
Copyright © 2008 Maxim Property Group
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