CALCULATING THE potential return on property investment was once a laborious task. However, the internet is making this important process much easier, helping buyers find their ideal property and assess its investment appeal.
One of the most important metrics to consider is yield - the percentage return on the value of the property after expenses (excluding finance/loan costs) but before tax. Loan costs are generally excluded so that the calculation reflects the performance of the property rather than the quality of the loan.
A standard approach to calculating yield is to total the expected annual rental income and then subtract annual expenses including rates, insurance, maintenance, corporate fees, management fees and two weeks of rental vacancy. This figure is then divided by the value of the property to determine the yield. Although an important measurement, yield does not take into account the capital gain growth of a property or the tax advantages that investing in it may provide.
Investors need to talk to a tax planner and property forecaster to fully appreciate these elements of their investment decision.
Tax is an important factor affecting the performance of an investment and Australia has appreciably high rates of property tax by Organisation for Economic Co-operation and Development standards. This has been a contentious political issue recently, with Treasurer Peter Costello repeatedly imploring state governments to reduce their steep tax rates. However, few concessions have been made.