As discussed in Part I there are many astute property and share investors in Australia who often fail to ensure that the investment loan they take offers the best available features and most tax efficient investment loan structure for them.When considering an investment loan you should ensure that you maximise your investment loan and that the interest rate is competitive (but not necessarily the cheapest – do not sacrifice features for interest rate); you should take the investment loan on an interest only basis and apply any surplus cash you have to the repayment of your non-deductible (your negative gearing benefits are maintained); you should not mix your investment loan with your home loan debt because the Australian Tax Office requires that any additional repayments of principal to such a “mixed” account must be apportioned between the home loan and the investment loan (your negative gearing benefits on your investment loan will reduce as a result).Another feature that all investors should include in their investment loan is a separate capitalising investment line of credit. The line of credit should be for a 10 year term minimum and be interest only. The importance of a capitalising line of credit within your investment loan structure cannot be underestimated. By having such a facility including in the investment loan you protect yourself form unforeseen vacancies and expenses in relation to the upkeep of your investment property. In a recent private ruling issued by the ATO a taxpayer was provided with a favourable outcome when he sought confirmation from the ATO that where he held an investment loan and the rental income did not cover his investment expenses (interest, costs, rates etc) then he could capitalise interest on an investment line of credit where the line of credit was used to meet the shortfall between his investment income and his investment costs (interest on the investment loan being a large portion of this. The taxpayer also had a home loan and advised the ATO in his private ruling application that he did not want to use his personal income to subsidise the shortfall (including the interest on his investment loan) that he was having to meet each month. Rather he sought to draw down on the line of credit within his investment loan facility to meet the shortfall and apply as much of his personal income to the repayment of his personal home loan debt.Under the line of credit he was not required to make any payments to the investment line of credit so the debt increased. The interest also increased with the result that the taxpayer could deduct the simple interest on the investment loan as well as the simple and capitalised interest on the investment line of credit. This delivered additional negative gearing benefits to the taxpayer while also saving him significant dollars on his home loan debt. By applying more of his personal income to repay personal debt he reduced his home loan term by 8 years and saved himself many thousands of dollars in the process.Make sure you include a capitalising line of credit within your investment loan structure – you have both protection (from vacancies, higher interest rates,unexpected costs) as well as the opportunity to increase your negative gearing benefits and reduce your home loan interest! Make your investment loan work for you and improve your investment return.

I recently decided the time was right to utilize some surplus cash I had available and began looking to purchase an investment property. Whilst it would have been easy to just dive in and find something that I could afford regardless of the location or potential growth, I thought it best to do some research knowing that my investment property was more than likely going to be a long term property investment for me. Timing was also good from an income perspective –I good easily demonstrate my capacity to service the investment loan I would need to complete the purchase and negatively gear the property. The “cost” of my investment loan after tax benefits were taken into account was considerably reduced.

When I began to think carefully about purchasing my investment property, I took such things as what economists were predicting as far as growth and property value increases as well as expenses that I would incur, both now and ongoing. This was definitely a decision I had to make with my head and not my heart. I also considered what was happening in the investment loan scene particularly in relation to features of an investment loan that could be advantageous for me as well as the general interest rate environment.

On the property front, my first port of call was to view the recent BIS Shrapnel report noting that by mid-2011, the median Sydney house price will climb from $560,000 to $650,000 – A senior economist at the firm, Jason Anderson, said the price rise would be spread across the city, helping cut the gap between Sydney’s two-speed property market. This was quite encouraging and meant that I could now look at a vast array of locations for my investment property. Whilst deciding on a local property, I also looked at the opportunity to perhaps purchase an investment property interstate, which is definitely something prospective buyers should focus on.

As far as investment loan product was concerned I checked out a number of mortgages until I found one that included a capitalizing interest component. I wanted to make sure that in the event that I had surplus personal income I could apply as much as possible of this to my home loan repayment as opposed to subsidizing my investment loan repayments. A capitalizing feature in an investment loan also gives me some protection in case of unexpected maintenance costs on my investment or a prolonged vacancy.

The next important issue I had to consider when deciding on an investment property was the cost associated with the purchase. There were the up-front costs such as loan fees, legal fees and government charges as well as the ongoing costs such as maintenance costs, real estate agent’s fees (rent collection), loan repayments, government taxes, etc. From a discussion I then had with my accountant, I discovered that as this was to be an investment property, most of the costs associated with the purchase, both up-front and ongoing, were tax deductible, either in the year I incurred them or in some cases they had to be spread out or amortized over a 3 or 5 year term.

I also checked out the possibility of borrowing these costs within my investment loan. This is always a possibility but I discovered that if your investment loan exceeds 80% of the purchase price then the costs increase – basically it did not seem worthwhile to take my investment loan past 80%. I did realize however that if I included my home property as security for the investment loan (I had quite good equity in my home) then this meant that I could borrow 100% + costs on the purchase within the investment loan. This again meant that instead of applying my savings to the investment purchase (and taking a smaller investment loan) I applied this to the reduction of my non-deductible home loan debt and increased my investment loan debt. Increasing the investment loan like this was much more tax efficient for me.

Having done my own property research and having sourced an excellent investment loan I now felt at ease with my decision to go ahead and start to look in earnest for a property.

I am now the proud owner of an affordable investment property that I negatively gear for taxation purposes through my investment loan. With the help of a reputable non-bank home loan provider, I have structured my home and investment loans to maximize my tax benefits.

When thinking about purchasing an investment property and looking for an investment loan it would always be advisable to thoroughly research the current real estate market, source qualified information about where the market is heading both locally and interstate as sometimes this may be a more profitable option and finally, speak to qualified financial consultants as this could potentially save you thousands when claiming deductible expenses. And don’t forget to make sure your home and investment loan are structured properly so that you are minimizing your tax bill as much as possible.

“Most people are too busy living their life to realizing that to put life in their living they spend planning their lives.”

Frequently I am asked the question, “What is a good investment to make?” You too may have often asked this question.

Just keep reading and you will soon find out what I’m bullish about when it comes to investing and why.

Unfortunately, when persons ask this question they are usually not prepared to invest. You see in order to invest you must first have money. That’s right you need money to invest and you can only get money to invest by saving a portion of your income every pay for this purpose. If you have no savings, then you can have no investment. You can’t invest what you don’t have.

So the first step in investing is to save some money! Not every now and then, but consistently and systematically. You should save a portion of every pay cheque you get. Here’s a simply formula that I like and that will help you get started. After receiving your pay check why not start setting aside 10% for saving, 10% for investing and 10% for giving (tithes), and then manage your expenses so that they are covered by the reminding 70 percent of your pay. And if you need help, “Taking Control of Your Money” workbook is a great resource to get you started

I know as you read this you are probably feeling that it won’t work for you but even if you have no money, or heavily in debt, it’s important to start now to correct your situation and come up with a plan to cut your expenses and maximize your savings. You have absolutely nothing to lose and everything to gain by trying this formula. So why not decide today to take time out and begin to properly managing your money! It’s one of your most important resources.

Secondly, you must realize that investing is risky business. You can lose your money. Therefore, you should only invest from money that you can afford to lose. That is why following the recommended formula is so important, as it separates your savings from your investment funds.

Now that you have some money to invest, let me tell you about aninvestment that I am bullish about. It is a product outside of stocks and mutual funds that allows you to:

Make “risk free”investments by guarantying your Principle. Make money on your money while diversifying your investmentchoices. Get a guaranteed return on your investment. Provide an immediate inheritance for your family Continue to provide for your loved ones even after you die. Create future income with minimal monthly contributions. Guarantees repayment of loans. Make “penalty free” withdrawal of cash. Get low interest loans.

The only investment product that provides all these comforts is a Whole Life Insurance policy. It is an invaluable tool and you should be sure to include it as the foundation of your investment portfolio.

A Whole Life insurance policy has both an insurance component and a savings component called cash values. It provides life insurance protection for your family in the event that you die, but it also accumulates cash value over time which makes it an excellent source of savings and for funding future needs such as making a down payment on a home, paying off a mortgage early, retirement funding, starting a business, or funding your children’s education. You pay one easy monthly premium for the insurance policy, a part of that premium is used to pay for the insurance coverage and the remaining part of the premium goes toward the investment savings. This savings portion of thepolicy is invested in one or more investment vehicles (stocks, bonds, mutual funds, etc.) that the insurance company select and the investments chosen will generally provide a better rate of return than a bank savings account. Also the cash value of your policy is available to you if you need money.

In addition to the protection and savings provided, you can restassured that your premiums will not exceed your returns. In the earlier years, your account will not reflect this, as there are certain items such as reserves that must be established at the onset of a policy. As well as administrative and commission expenses which are higher in the earlier years but in a few years your cash value should begin to grow and with the help of compound interest continues to grow.

I must caution you that all whole life policies do not offer the same rate of returns or low interest rate on loans. That is why reading the free reports:

“The Truth about Life Insurance and Why You Don’t Need “One” and “Your Best Bet for 2008 and Beyond”, are tools that will enhance your understanding.

The more you understand just how valuable a Whole Life Insurance policy could be to your life, the less you will think about delaying its inclusion in your investment plans. You don’t realize it yet but after a few short minutes of reading these report you’ll realize that it’s a good investment to make!

“Most people are so busy knocking themselves out trying to do everything they think they should do, that they never get around to doing what they want or need to do.”

Copyright © 2001 – 2009 – Glenn S. Ferguson

If you are considering adding tax free investments into your existing portfolio, here are some common mistakes that you should avoid.

1) Don’t chase numbers – Often, investment of insurance companies will try to dazzle you with attractive yields. If someone comes to you and say that they have tax free investment products that offer an unusually high yield, don’t just take their word for it. Analyze the numbers for yourself and understand what they mean. It certainly helps to be discerning. If it sounds too good to be true, it probably is.

2) Don’t chase new financial products – Investment and insurance companies are forever issuing and announcing new products. The recent trend – a plethora of new tax free products. They do this for many reasons but one of the main reasons is to keep up with the evolving needs of the marketplace. If you find some of these new products to be a good fit for your existing investment port folio, take some time to examine them. Otherwise, just walk the other way, or you may find yourself burdened with a large number of financial products that you not really need.

3) Always keep yourself updated with the latest investment deals – Keeping abreast of recent changes in the marketplace prevents you from investing in an outdated financial product. For example, if you are a high-net-worth investor (HNWI), you may qualify for a Private Placement Life Insurance policy. This new contract allows you to invest in a variety of tax free investment instruments, and gives you additional protection by wrapping your contract with an insurance element.

4) Managing your investment risks – You can do this by investing in a wide variety of bonds, equities and other tax free investment funds such as hedge funds. Keeping a close watch on your investment portfolio is a must, so that investment decisions can come quickly in respond to constant and fluid market changes.

5) Take note of any changes in the investment funds – For instance, the top management for a particular fund may have changed recently. This may mean a change in investment philosophy. If the new philosophy is not aligned to your own investment philosophy, you may want to consider switching funds. Your accountant or investment advisor may also help to keep track of other changes such as changes to fund management fees.

6) Never judge a book by its cover – Some investors think that they know everything about a fund just by looking at its name. But the fact is, the name of the fund is not always an accurate indication of the risks that the fund is undertaking. Always take the time to scrutinize prospectuses and other documentation. Even when the name claims that it’s a tax free investment fund, look into the instruments that the fund will be investing in to assess the level of risk. When in doubt, consult a trusted professional investment advisor.

7) Investing in tax free funds without a plan – There is no need to rush into any investment. Hasty decisions often lead to undesirable results. So take some time to sit down and discuss various tax free investment options with a financial advisor. Draw out a plan, chart a course, and head towards your desired direction to help achieve your own financial goals.

At the end of the day, it’s all about managing risks and maximizing returns in order to achieve the goals that you want as soon as possible. In the complex world of investments, there are many pitfalls. But these pitfalls can, and should be avoided. Don’t hesitate to get professional help. After all, professionals look after millions of dollars of investments, and they are also more updated on the latest trends. This means they will be in a much better position to offer you sound investment advice.

If you have a home loan but also equity in your home property and want to purchase an investment property to build wealth, then it is important to research the investment loan market to make sure that you apply for an investment loan that really works for you. When you apply for an investment loan, most lenders will simply offer you their standard term investment loan. Quite often they will seek to structure the investment loan so that it is on a principal and interest basis. While ever you have home loan debt it is much better to have an interest only investment loan. This ensures that the repayments you make on the investment loan are the minimum possible as opposed to including any principal reductions. If you apply any principal amount that you would otherwise have made on a principal and interest investment loan to the repayment of your home loan you will repay your home loan much faster and save yourself a heap in interest payments. There are also the tax considerations – if you do not reduce your investment loan debt then you do not reduce the amount of deductible interest you can claim each year. Your negative gearing position is maintained as opposed to diminishing each year.

Ideally an investment loan will also include a capitalizing line of credit so that you can have a buffer during high interest rate times or when there are unexpected vacancies or costs relating to your investment property. By including a capitalising line of credit within your investment loan you are also in a position where if you wished or need to you could capitalise the shortfall between the rental income you receive and the outgoings you incur (including the interest on your investment loan). This shortfall is added on to the investment loan instead of being met from your personal income. By not having to subsidise the shortfall in interest on your investment loan you have freed up your cash flow. The most efficient way to use this freed up cash flow is to apply it to an additional repayment on your home loan. You may not realise but if you were to capitalise a monthly shortfall of interest on your investment loan of say $350 (rather than pay from your salary) and instead applied that $350 to the repayment of your home loan of $150,000 (@ 9.25% over 30 years) then you would repay that home loan out in less than half the term (in 14 years and 2 months to be precise) and by doing so save your self almost $175,000 in interest repayments to the bank.

Many investors when looking for an investment loan do not properly research the market and accept whatever is offered to them by their bank. This approach can be costly in the long run. Check out the other investment loan options in the market and look to a lender who understands your investment needs and can provide you with an investment loan that gives you a lot of flexibility, is priced competitively and defintiel includes a capitalising interest feature.

It is also helpful if your lender is able to issue separate statements for each investment loan you have and your home loan. Some mortgage managers also give you the ability to name each account e.g. 16 William St making for easy identification of each investment laon for you, and your accountant at tax time.

Be an astute investor and look for an investment loan that offers these sort of features as it will help you reach your wealth building goals much quicker.

Real estate investment has emerged as one of the best way to generate revenue and can be used as collateral to secure a loan for a business venture. The investment in real estate whether international or domestic involve risks, even if the venture is successful, when the future flows of income will accrue to the investor and could help alternative investment opportunities.

According to Ross Moore, vice president of Colliers International USA, “foreign real estate investment offers diversification that is a superior investment style”. It distributes the risk in an effective manner among the multiple markets and optimizes a possible return. Sometimes number of commercial real estate investors need a huge amount of capital to attain and maintain their global portfolio, but the small investors has the opportunity to diversify the assets on a microcosmic level, such as buying residential property, which show considerable possibility of a good profit. However, regardless of the type of investment in foreign real estate, which may be commercial real estate or vacation home in Mexico, investors should look for professional’s help, who have the knowledge about global markets and are well connected with the local real estate agent.  

Since a foreign real estate investment involves more risk, as you are expanding your property holdings beyond your country and you are not aware of the local market of other countries, you would have to do lots of research on the various countries, in which you are interested to invest. You have to collect various sources of information to acquire knowledge of properties that you would need and invest. You may not get time to do a research on many countries, but you could take the help of websites. This will give you an overview of various countries and their style of living. It is always advisable to visit the country personally and experience the living out there, if you plan to invest in foreign real estate. You can expect higher rewards even with the risk that you take to invest wisely.

You can inquire about different loans and mortgages that are available in that particular country, which would give you a clear idea that investing in that country would be a profitable venture for you or not. Once you are finished with the investigation of the countries’ real estate markets, you would now think, how you should invest in the international real estate market.  

As the foreign real estate investment market is huge, so you can get a property, which may be larger than the one in your own country. It could be a provincial property and if you could convert it into a commercial property, you could get higher returns on investment. Always look for the advantages and disadvantages, while you purchase a property, otherwise you may end up losing money and the investment may turn out to be a waste. 

Some of the countries, where real estate investment could possibly turn out to be a profitable venture are Croatia, China or Europe, where you find rapid growth in real estate properties due to industrialization and increase in the quality of living. In North America, investors find agricultural properties quite worthwhile to invest in, as they have higher returns on investment. Apart from these Asia and Africa are also worth considering as far as real estate investment is concerned.  

If you are a beginner in this foreign real estate investment, you may make mistakes, as it is a very difficult field to get into. However, even if you have invested in a property, you will not run in a total loss, even if the value of the property decreases. You still own the property, which you could hold onto until such time, its value increases and your foreign real estate investment would prove worthwhile. 

Written by: GS

Date Written: 07/04/08 

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Reviewed by: GD

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Have you ever imagined that it was possible to double or even triple your current investment earnings without having to fork over a nickel to Uncle Sam in taxes? Believe it or not, it is possible…with a self investing IRA or 401(k).  These two retirement savings accounts allow you to build wealth while saving on taxes.  A self directed IRA or 401(k) are savings plans that give you the decision making power when it comes to investing your contributions. With this type of control, your free to invest and reinvest, multiple times, maximizing your earnings.  

One of the more popular investments individual’s make with their self managed savings accounts is real estate. Now this doesn’t mean you can buy a new home for yourself, or get a better rate on your present mortgage, but investing 401(k) money in real estate, or IRA money, is a way to buy and sell property for a profit.  A self investing IRA keeps your money actively working for you, rather than passively sitting in the bank earning a minimum return. 

When you set up a self investing IRA you will have to make a decision on how you are going to take the tax benefit provided by the government.  What it boils down to is a “pay now” or “pay later” situation.  

If you want to “pay now,” you can set up a self directed, Roth IRA, which is funded with money from income that has already been taxed.  Any earnings you make from your investments remain tax free. For example, if you decide to invest in real estate, you can continue to invest and reinvest your earnings, multiple times, and the profits you make remain tax free.  Even when you pull your money out at retirement, you won’t owe any taxes on your earnings. Your “already taxed” contributions can also be withdrawn, tax-free. 

If you want to “pay later,” you would set up a traditional, self investing IRA, which is funded with money that you deduct from you taxable income for that year.  Any earnings you make from your investments remain tax deferred, until you withdraw them at retirement.  At that time, applicable taxes would be due.  Just like with self managed Roth IRA, you have the control to maximize your earnings by investing in a profitable vehicle like real estate. 

Investing 401(k) money in real estate is no different from an IRA.  The difference comes in the maximum amount the government allows you to put into each of these accounts.  A self investing IRA is limited to a $5000 maximum contribution for 2008.  The maximum allowable contribution to a self directed 401(k) is $15,500 for 2008.  The “pay now” or “pay later” decision must also be made when setting up a self directed 401(k). 

You will find that most financial institutions will discourage you from setting up a self investing IRA or 401(k). This is because they don’t want to lose the fees profits they make from selling and managing their in-house investments.  

If you want to set up one of these self managed accounts you’re going to have to find a company that specializes in managing these types of savings plans.  These companies are there to take your investment orders and manage the hassle of the paperwork and regulation compliance. 

Make no mistake about it.  Owning a self investing IRA is going to mean taking an active role in determining your financial destiny.  These savings accounts are not for people who can’t be bothered with the “hassle” and “uncertainty” of making investment decisions.  But if you really want to take advantage of the fantastic opportunity to maximize your earnings and save on taxes, then a self investing IRA or 401(k) is the way to go.