Investment|Articles, Answers and Videos - on Investment
Apr
30
Filed Under (Business) by investment
Heidi Grumm asked:
FDI stands for Foreign Direct Investment, a component of a country’s national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially “hot money” which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly
The resilience of foreign direct investment during financial crises may lead many developing countries to regard it as the private capital inflow of choice. Although there is substantial evidence that such investment benefits host countries, they should assess its potential impact carefully and realistically
Economists tend to favor the free flow of capital across national borders because it allows capital to seek out the highest rate of return. Unrestricted capital flows may also offer several other advantages. First, international flows of capital reduce the risk faced by owners of capital by allowing them to diversify their lending and investment. Second, the global integration of capital markets can contribute to the spread of best practices in corporate governance, accounting rules, and legal traditions. Third, the global mobility of capital limits the ability of governments to pursue bad policies.
In addition to these advantages, which in principle apply to all kinds of private capital inflows,the gains to host countries from Foreign Direct Investment (FDI) can take several other forms:
• FDI allows the transfer of technology—particularly in the form of new varieties of capital inputs—that cannot be achieved through financial investments or trade in goods and services. FDI can also promote competition in the domestic input market.
• Recipients of FDI often gain employee training in the course of operating the new businesses, which contributes to human capital development in the host country.
• Profits generated by FDI contribute to corporate tax revenues in the host country.
Foreign Direct Investment ( FDI) versus other flows
Despite the strong theoretical case for the advantages of free capital flows, the conventional wisdom now seems to be that many private capital flows pose countervailing risks. many host countries, even when they are in favor of capital inflows, view international debt flows, especially of the short-term variety, as “bad cholestero.
In contrast, FDI is viewed as “good cholesterol” because it can confer the benefits enumerated earlier. An additional benefit is that FDI is thought to be “bolted down and cannot leave so easily at the first sign of trouble.” Unlike short-term debt, direct investments in a country are immediately repriced in the event of a crisis.
Recent evidence
To what extent is there empirical support for such claims of the beneficial impact of Foreign Direct Investment?
A comprehensive study by Bosworth and Collins (1999) provides evidence on the effect of capital inflows on domestic investment for 58 developing countries during 1978-95. The sample covers nearly all of Latin America and Asia, as well as many countries in Africa. The authors distinguish among three types of inflows: Foreign Direct Investment, portfolio investment, and other financial flows (primarily bank loans).
Countries should concentrate on improving the environment for investment and the functioning of markets. They are likely to be rewarded with increasingly efficient overall investment as well as with more capital inflows.” Although it is very likely that FDI is higher, as a share of capital inflows, where domestic policies and institutions are weak, this cannot be regarded as a criticism of Foreign Direct Investment per se. Indeed, without it, the host countries could well be much poorer.
Fire sales, adverse selection, and leverage. Foreign Direct Investment http://korea.ixs.net/foreign-direct-investment.aspx is not only a transfer of ownership from domestic to foreign residents but also a mechanism that makes it possible for foreign investors to exercise management and control over host country firms—that is, it is a corporate governance mechanism. The transfer of control may not always benefit the host country because of the circumstances under which it occurs, problems of adverse selection, or excessive leverage.
Both economic theory and recent empirical evidence suggest that Foreign Direct Investment has a beneficial impact on developing host countries. But recent work also points to some potential risks: it can be reversed through financial transactions; it can be excessive owing to adverse selection and fire sales; its benefits can be limited by leverage; and a high share of Foreign Direct Investment in a country’s total capital inflows may reflect its institutions’ weakness rather than their strength. Though the empirical relevance of some of these sources of risk remains to be demonstrated, the potential risks do appear to make a case for taking a nuanced view of the likely effects of Foreign Direct Investment. Policy recommendations for developing countries should focus on improving the investment climate for all kinds of capital, domestic as well as foreign.
For More Information about Foreign Direct Investment visit : http://eng.ifez.go.kr/guide/org/foreign-direct-investment.asp
KERMIT
FDI stands for Foreign Direct Investment, a component of a country’s national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially “hot money” which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly
The resilience of foreign direct investment during financial crises may lead many developing countries to regard it as the private capital inflow of choice. Although there is substantial evidence that such investment benefits host countries, they should assess its potential impact carefully and realistically
Economists tend to favor the free flow of capital across national borders because it allows capital to seek out the highest rate of return. Unrestricted capital flows may also offer several other advantages. First, international flows of capital reduce the risk faced by owners of capital by allowing them to diversify their lending and investment. Second, the global integration of capital markets can contribute to the spread of best practices in corporate governance, accounting rules, and legal traditions. Third, the global mobility of capital limits the ability of governments to pursue bad policies.
In addition to these advantages, which in principle apply to all kinds of private capital inflows,the gains to host countries from Foreign Direct Investment (FDI) can take several other forms:
• FDI allows the transfer of technology—particularly in the form of new varieties of capital inputs—that cannot be achieved through financial investments or trade in goods and services. FDI can also promote competition in the domestic input market.
• Recipients of FDI often gain employee training in the course of operating the new businesses, which contributes to human capital development in the host country.
• Profits generated by FDI contribute to corporate tax revenues in the host country.
Foreign Direct Investment ( FDI) versus other flows
Despite the strong theoretical case for the advantages of free capital flows, the conventional wisdom now seems to be that many private capital flows pose countervailing risks. many host countries, even when they are in favor of capital inflows, view international debt flows, especially of the short-term variety, as “bad cholestero.
In contrast, FDI is viewed as “good cholesterol” because it can confer the benefits enumerated earlier. An additional benefit is that FDI is thought to be “bolted down and cannot leave so easily at the first sign of trouble.” Unlike short-term debt, direct investments in a country are immediately repriced in the event of a crisis.
Recent evidence
To what extent is there empirical support for such claims of the beneficial impact of Foreign Direct Investment?
A comprehensive study by Bosworth and Collins (1999) provides evidence on the effect of capital inflows on domestic investment for 58 developing countries during 1978-95. The sample covers nearly all of Latin America and Asia, as well as many countries in Africa. The authors distinguish among three types of inflows: Foreign Direct Investment, portfolio investment, and other financial flows (primarily bank loans).
Countries should concentrate on improving the environment for investment and the functioning of markets. They are likely to be rewarded with increasingly efficient overall investment as well as with more capital inflows.” Although it is very likely that FDI is higher, as a share of capital inflows, where domestic policies and institutions are weak, this cannot be regarded as a criticism of Foreign Direct Investment per se. Indeed, without it, the host countries could well be much poorer.
Fire sales, adverse selection, and leverage. Foreign Direct Investment http://korea.ixs.net/foreign-direct-investment.aspx is not only a transfer of ownership from domestic to foreign residents but also a mechanism that makes it possible for foreign investors to exercise management and control over host country firms—that is, it is a corporate governance mechanism. The transfer of control may not always benefit the host country because of the circumstances under which it occurs, problems of adverse selection, or excessive leverage.
Both economic theory and recent empirical evidence suggest that Foreign Direct Investment has a beneficial impact on developing host countries. But recent work also points to some potential risks: it can be reversed through financial transactions; it can be excessive owing to adverse selection and fire sales; its benefits can be limited by leverage; and a high share of Foreign Direct Investment in a country’s total capital inflows may reflect its institutions’ weakness rather than their strength. Though the empirical relevance of some of these sources of risk remains to be demonstrated, the potential risks do appear to make a case for taking a nuanced view of the likely effects of Foreign Direct Investment. Policy recommendations for developing countries should focus on improving the investment climate for all kinds of capital, domestic as well as foreign.
For More Information about Foreign Direct Investment visit : http://eng.ifez.go.kr/guide/org/foreign-direct-investment.asp
KERMIT
Apr
27
Filed Under (Investing) by investment
Mike S asked:
I am considering setting up a custodial stock account for my 2 year old. I’m seriously considering DRIP type investment.
I am considering setting up a custodial stock account for my 2 year old. I’m seriously considering DRIP type investment.
What type of account is most beneficial in terms of tax benefits, for both parents and children?
Is it better to own a separate DRIP account until the child reaches the adult age and then gift them the account or use it to pay for the education?
Thanks
RANDY
Apr
27
How do I file my investment in oil and gas wells? I didn’t last year can I make up for it this year?
Filed Under (United States) by investment
Confused as usual asked:
I have “interest” in 2 natural gas wells. The investment in minimal, but still I know somewhere/ somehow I can deduct all or part on my taxes, but don’t know how. Also, I invested in one last year and only reported the income, not the expense, can I now do it this year for last year’s investment? All help is WONDERFUL! Thanks!
SCOT
I have “interest” in 2 natural gas wells. The investment in minimal, but still I know somewhere/ somehow I can deduct all or part on my taxes, but don’t know how. Also, I invested in one last year and only reported the income, not the expense, can I now do it this year for last year’s investment? All help is WONDERFUL! Thanks!
SCOT
Apr
24
Filed Under (Investing) by investment
vince r asked:
In 1970, when Wal-Mart Stores, Inc. went public, an investment of 100 shares cost $1,650. That investment would have been worth $12,283,904 on January 31, 2002. What is the annual worth and future worth of the investment? Give the solution step by step for annual worth method and future worth method?
LEONARD
In 1970, when Wal-Mart Stores, Inc. went public, an investment of 100 shares cost $1,650. That investment would have been worth $12,283,904 on January 31, 2002. What is the annual worth and future worth of the investment? Give the solution step by step for annual worth method and future worth method?
LEONARD
Apr
22
Filed Under (Investing) by investment
Nickaree asked:
With the economy the way it is right now, what is the best financial investment I could make? I heard on the radio that now is the time to invest in gold? If money wasn’t an issue what would be the smartest investment.
ROBIN
With the economy the way it is right now, what is the best financial investment I could make? I heard on the radio that now is the time to invest in gold? If money wasn’t an issue what would be the smartest investment.
ROBIN
Apr
22
Filed Under (Customer Service) by investment
avi asked:
I recently decided the time was right to utilise 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 were 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 capitalising 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 subsidising my investment loan repayments. A capitalising 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 amortised 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 realise 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 maximise 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 minimising your tax bill as much as possible.
BLAKE
I recently decided the time was right to utilise 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 were 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 capitalising 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 subsidising my investment loan repayments. A capitalising 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 amortised 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 realise 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 maximise 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 minimising your tax bill as much as possible.
BLAKE
Apr
18
Filed Under (Education) by investment
elliottwaveintl asked:
Part 1: Robert Prechter speaks at the 2007 New Orleans Investment Conference.
Visit Prechter on the web for his latest market commentary, monthly market letter and additional free and subscription resources: http://www.elliottwave.com/wave/youtube
ROLAND
Apr
18
Filed Under (Investing) by investment
myspecialemails asked:
I would like to open an investment account to build a secret nest egg. I have $5000 to start and want to add up to $100,000. I don’t want my husband to know about it and prefer that it be non-taxable and as untraceable as possible. Any suggestions?
JONATHON
I would like to open an investment account to build a secret nest egg. I have $5000 to start and want to add up to $100,000. I don’t want my husband to know about it and prefer that it be non-taxable and as untraceable as possible. Any suggestions?
JONATHON
Apr
09
Filed Under (Investing) by investment
Allen Bohart asked:
While it can seem very difficult to put money away each month for retirement or savings, not doing so can leave you with a lifetime of living paycheck to paycheck with no possibility of retirement. Just putting the money away, though, is not enough. You have to invest that money in something that will put your money to work for you, earning money on its own. The stock market, retirement plans, mutual funds, and other investment vehicles offered through banks and investment companies are great ways to do this. Be sure to avoid these common pitfalls when considering how to invest that money:
1. Don’t ignore your employer’s 401k plan, if it is offered. Most employers do have such a plan, and many match the funds you put in in some way. By not taking advantage of the 401k, you may be giving up free money, and you are definitely giving up one of the best possible investment vehicles around. If this is available to you, be sure to take advantage of it as soon as you are eligible.
2. Lack of some kind of investment and savings plan. Your age, budget, family situation, and other economic factors will determine how much you can invest each month, and what kind of investments you should make. Familiarize yourself with basic investing philosophies and then invest according to your needs and situation.
3. Being too conservative with your investments. If your timeline to retirement or other financial need is more than 20 years away, you need to consider maximizing your returns through riskier investments. While you may lose some money, at least on paper, in the short term, history has proven again and again that you will make significant returns over the long term. Riskier investments invariably provide higher returns.
4. Taking too much risk with your investments. As you get closer to retirement, you will need to start taking a different outlook on your investing. The name of the game here will be capital preservation, rather than high returns. As a result, you will want to start moving your portfolio to less risky investment vehicles such as money market funds, bond funds, and CDs.
5. Investing too heavily into one sector or type of investment. The best way to preserve capital, while at the same time earning high returns, is to diversify your portfolio. This will allow your money to grow regardless of current economic conditions and keep you from suffering the consequences of knee-jerk market reactions to short-term economic factors.
6. Getting involved in get rich quick scams. Once you’ve established investment accounts, you will be continually bombarded by less-than-honest people trying to get you to buy into their “hot stocks” tip sheets, and other investment advisory information. Don’t fall for it. Chances are, these opportunities are outright fake or just short of impossible to get them to actually work.
7. Hanging on to a hot investment for too long. From time to time, you will find a stock or other investment that pays very high returns. Keep in mind that it will not stay that way, and set a goal to get out before you lose money on it (double or triple your money, whatever makes sense). Once you’re out, don’t look back. Be happy that you made good money on it, not sad that you might have made more.
8. Information overload. You can spend way too much time on analyzing an investment, and by the time you are ready to make a move, it’s too late. Don’t let this happen to you. Lots of money is lost everyday because people were unwilling to make a move in time. Get just enough information to confirm your hunch and then just do it. If you don’t know enough about the investment or the industry, use an investment advisor to limit any mistakes you might make.
9. Investing while being saddled with debt. Your debt will accrue interest charges much faster than your investments will make money. Before investing your first dollar, get out of debt, particularly credit cards and other revolving debt instruments. A mortgage is just fine, as that will likely make you money in the long term, but revolving credit is just not necessary for most people.
10. Paying too much in commission fees. Few things will eat into your investment returns faster than commissions. Unless you are already very rich, and you’re constantly trading in and out of stocks and bonds, you should not be paying high commissions. For most people a discount broker is the way to go. For the cheapest possible commissions, consider using one of the online investment brokers, and be sure to compare commission structures before deciding which broker to use.
LAUREN
While it can seem very difficult to put money away each month for retirement or savings, not doing so can leave you with a lifetime of living paycheck to paycheck with no possibility of retirement. Just putting the money away, though, is not enough. You have to invest that money in something that will put your money to work for you, earning money on its own. The stock market, retirement plans, mutual funds, and other investment vehicles offered through banks and investment companies are great ways to do this. Be sure to avoid these common pitfalls when considering how to invest that money:
1. Don’t ignore your employer’s 401k plan, if it is offered. Most employers do have such a plan, and many match the funds you put in in some way. By not taking advantage of the 401k, you may be giving up free money, and you are definitely giving up one of the best possible investment vehicles around. If this is available to you, be sure to take advantage of it as soon as you are eligible.
2. Lack of some kind of investment and savings plan. Your age, budget, family situation, and other economic factors will determine how much you can invest each month, and what kind of investments you should make. Familiarize yourself with basic investing philosophies and then invest according to your needs and situation.
3. Being too conservative with your investments. If your timeline to retirement or other financial need is more than 20 years away, you need to consider maximizing your returns through riskier investments. While you may lose some money, at least on paper, in the short term, history has proven again and again that you will make significant returns over the long term. Riskier investments invariably provide higher returns.
4. Taking too much risk with your investments. As you get closer to retirement, you will need to start taking a different outlook on your investing. The name of the game here will be capital preservation, rather than high returns. As a result, you will want to start moving your portfolio to less risky investment vehicles such as money market funds, bond funds, and CDs.
5. Investing too heavily into one sector or type of investment. The best way to preserve capital, while at the same time earning high returns, is to diversify your portfolio. This will allow your money to grow regardless of current economic conditions and keep you from suffering the consequences of knee-jerk market reactions to short-term economic factors.
6. Getting involved in get rich quick scams. Once you’ve established investment accounts, you will be continually bombarded by less-than-honest people trying to get you to buy into their “hot stocks” tip sheets, and other investment advisory information. Don’t fall for it. Chances are, these opportunities are outright fake or just short of impossible to get them to actually work.
7. Hanging on to a hot investment for too long. From time to time, you will find a stock or other investment that pays very high returns. Keep in mind that it will not stay that way, and set a goal to get out before you lose money on it (double or triple your money, whatever makes sense). Once you’re out, don’t look back. Be happy that you made good money on it, not sad that you might have made more.
8. Information overload. You can spend way too much time on analyzing an investment, and by the time you are ready to make a move, it’s too late. Don’t let this happen to you. Lots of money is lost everyday because people were unwilling to make a move in time. Get just enough information to confirm your hunch and then just do it. If you don’t know enough about the investment or the industry, use an investment advisor to limit any mistakes you might make.
9. Investing while being saddled with debt. Your debt will accrue interest charges much faster than your investments will make money. Before investing your first dollar, get out of debt, particularly credit cards and other revolving debt instruments. A mortgage is just fine, as that will likely make you money in the long term, but revolving credit is just not necessary for most people.
10. Paying too much in commission fees. Few things will eat into your investment returns faster than commissions. Unless you are already very rich, and you’re constantly trading in and out of stocks and bonds, you should not be paying high commissions. For most people a discount broker is the way to go. For the cheapest possible commissions, consider using one of the online investment brokers, and be sure to compare commission structures before deciding which broker to use.
LAUREN
Apr
04
Filed Under (Customer Service) by investment
avi asked:
An investment property is becoming a more popular choice for those seeking to create a revenue stream and also achieve capital growth through the investment property value increasing over time.
This can also be part of a strategic financial plan and should be considered by investors as part of a diversified portfolio. When considering an investment purchase you should also source the best investment loan structure for you. With any investment your investment loan can make a difference to your return. If you are negatively geared through an investment loan the cost to you of that investment loan can effectively be reduced.
If you purchase wisely, once there has been capital growth in the investment property over time there is the option of using this built up equity to move into another investment property, take out another investment loan and thereby continue to further increase your investment portfolio.
Aside from the traditional belief that tax advantages are the key driver for taking out an investment home loan there are many other factors to consider when purchasing an investment property.
Below are some key points for your reference, by using these points as a guide in conjunction with a detailed discussion with your accountant or financial planner you will be in a better position to ensure your investment purchase and investment loan is a financially sound decision for the long term.
In relation to property enquiry therefore, you should consider:
* What is the infrastructure like in the area? Are there enough schools, hospitals, shopping centres, doctors and dentists, freeways or main roads?
* What has the historical capital growth been in the area over the last two decades?
* Is the local council planning to increase housing density or add a new road to increase traffic flow?
* If you are purchasing in a new subdivision, are there more new land blocks and house and land packages planned nearby. New developments can impact on the value of your home as purchasers often prefer a new home to one that might be 2 or 3 years old in the same area.
* What length of time will the investment be held? And will this tie in with planned infrastructure development which will in turn accelerate capital growth?
There has been recent press to suggest that investment and home property values in Sydney have a potential capital growth of 18% over the next 3 years so buying off the plan as an investor may be an attractive option in the current market. If you find a good property development, suitable for investment, which has a completion date in say 2010 – 2011 then you can exchange contracts with either a 10% cash deposit or a deposit bond (as a guide the cost of a deposit bond of around $86500 for say settlement September 2011 will cost you approximately $9000- $9500 (significantly less than the interest you would pay over the period if you borrow $86,500 at current interest rates of 9% p.a). The general feeling is that direct investment into property as opposed to into managed property funds is a better way to go – you are in control of your investment and avoid the high management fees so often charged by share and property investment funds.
Do some research on the internet to see which areas have the greatest potential for capital gains – remember if you are looking for an investment property you should invest with your head not your heart. An investment property needs to be well located to transport and other facilities so that those renting can easily access these services.
When considering which investment loan would suit you best take the following into account:
1. Does the investment loan allow you to split it into a number of investment loan accounts. This is a good feature to have in an investment loan because you are positioning yourself for the future – if you use the investment property at a later date to gear into another investment purchase then you can split the account so that the investment loan portion relating to the new purchase is clearly identified. This allows you, and your accountant, to easily track the costs associated with the new purchase.
2. If you use your home property (with an existing home loan) as security for the investment loan then it is imperative that you do not mix any home loan debt with your investment loan borrowings. The ATO in Australia requires you to apportion any additional repayments to a loan where the borrowings are “mixed”. You want to apply any additional repayments to your home loan before your investment loan. You are paying your home loan off in after tax dollars – whereas you can deduct the interest you are paying on your investment loan against the income form the investment property.
3. Does the investment loan allow you to capitalise interest? It is always a good idea to include a capitalising feature as a part of your investment loan to protect you against any unexpected costs in relation to the property. It also means that instead of subsidising the investment costs and interest shortfall on your investment loan you can capitalise these and make additional repayments to your non-deductible home loan debt.
4. If you have sufficient equity in your home then you may be better to consider a 100% + costs investment loan for the investment acquisition and use any savings you intended for the investment purchase to pay down your home loan debt.
If you consider all these points your investment loan will be working in your favour at all times.
BRADY
An investment property is becoming a more popular choice for those seeking to create a revenue stream and also achieve capital growth through the investment property value increasing over time.
This can also be part of a strategic financial plan and should be considered by investors as part of a diversified portfolio. When considering an investment purchase you should also source the best investment loan structure for you. With any investment your investment loan can make a difference to your return. If you are negatively geared through an investment loan the cost to you of that investment loan can effectively be reduced.
If you purchase wisely, once there has been capital growth in the investment property over time there is the option of using this built up equity to move into another investment property, take out another investment loan and thereby continue to further increase your investment portfolio.
Aside from the traditional belief that tax advantages are the key driver for taking out an investment home loan there are many other factors to consider when purchasing an investment property.
Below are some key points for your reference, by using these points as a guide in conjunction with a detailed discussion with your accountant or financial planner you will be in a better position to ensure your investment purchase and investment loan is a financially sound decision for the long term.
In relation to property enquiry therefore, you should consider:
* What is the infrastructure like in the area? Are there enough schools, hospitals, shopping centres, doctors and dentists, freeways or main roads?
* What has the historical capital growth been in the area over the last two decades?
* Is the local council planning to increase housing density or add a new road to increase traffic flow?
* If you are purchasing in a new subdivision, are there more new land blocks and house and land packages planned nearby. New developments can impact on the value of your home as purchasers often prefer a new home to one that might be 2 or 3 years old in the same area.
* What length of time will the investment be held? And will this tie in with planned infrastructure development which will in turn accelerate capital growth?
There has been recent press to suggest that investment and home property values in Sydney have a potential capital growth of 18% over the next 3 years so buying off the plan as an investor may be an attractive option in the current market. If you find a good property development, suitable for investment, which has a completion date in say 2010 – 2011 then you can exchange contracts with either a 10% cash deposit or a deposit bond (as a guide the cost of a deposit bond of around $86500 for say settlement September 2011 will cost you approximately $9000- $9500 (significantly less than the interest you would pay over the period if you borrow $86,500 at current interest rates of 9% p.a). The general feeling is that direct investment into property as opposed to into managed property funds is a better way to go – you are in control of your investment and avoid the high management fees so often charged by share and property investment funds.
Do some research on the internet to see which areas have the greatest potential for capital gains – remember if you are looking for an investment property you should invest with your head not your heart. An investment property needs to be well located to transport and other facilities so that those renting can easily access these services.
When considering which investment loan would suit you best take the following into account:
1. Does the investment loan allow you to split it into a number of investment loan accounts. This is a good feature to have in an investment loan because you are positioning yourself for the future – if you use the investment property at a later date to gear into another investment purchase then you can split the account so that the investment loan portion relating to the new purchase is clearly identified. This allows you, and your accountant, to easily track the costs associated with the new purchase.
2. If you use your home property (with an existing home loan) as security for the investment loan then it is imperative that you do not mix any home loan debt with your investment loan borrowings. The ATO in Australia requires you to apportion any additional repayments to a loan where the borrowings are “mixed”. You want to apply any additional repayments to your home loan before your investment loan. You are paying your home loan off in after tax dollars – whereas you can deduct the interest you are paying on your investment loan against the income form the investment property.
3. Does the investment loan allow you to capitalise interest? It is always a good idea to include a capitalising feature as a part of your investment loan to protect you against any unexpected costs in relation to the property. It also means that instead of subsidising the investment costs and interest shortfall on your investment loan you can capitalise these and make additional repayments to your non-deductible home loan debt.
4. If you have sufficient equity in your home then you may be better to consider a 100% + costs investment loan for the investment acquisition and use any savings you intended for the investment purchase to pay down your home loan debt.
If you consider all these points your investment loan will be working in your favour at all times.
BRADY
