For individuals the start of the year is a great time to set and review personal resolutions and goals, but for businesses the end of financial year is that moment – and yes, you should be treating your property investing as a business.
Let’s take a look at some of the key considerations you should be covering off at this time of year (every year), and the people who should be involved.
You shouldn’t have one accountant for personal purposes, another for any companies, trusts or self managed super funds (SMSFs), and yet another for your business or property investments. If you have one good accountant, you don’t need two or three!
And as a property investor, your accountant shouldn’t just be “doing your taxes”. Tax planning should be ongoing and proactive.
Mario Vinaccia, Director of Veale Accounting Group, emphasises that it’s important to keep your accountant in the loop throughout the year, rather than leaving it all until the last minute. And that’s not just because tax time is one of the busiest times of year for accountants! Mario elaborates:
“If you’ve sold a property, for example, then you should advise your accountant immediately – or better still, discuss the sale beforehand. This way we can actively consider opportunities and strategies going forward, and carry out tax planning to maximise your reductions and minimise your tax obligations appropriately.”Mario Vinaccia, Director of Veale Accounting Group
It’s important your accountant is well and truly ahead of any changes to your circumstances, rather than being forced to react after the fact. To this end, you should also have a depreciation schedule in place and strategically plan the cost of any repairs that need to be undertaken.
Your accountant can also help with suitable asset protection, safeguarding properties in your own name, or using more sophisticated strategies such as family trusts and SMSFs.
Finally, it’s important to be up to date with your taxes, particularly if you’re searching for your next property acquisition.
When it comes to seeking finance approval, generally speaking banks will accept the last two payslips for employees who have been in their current role for around three months, and the previous year’s financials up until the end of February for those who are self employed. But – particularly throughout the COVID period – many businesses earned less income, so it makes sense that if your 2022 financials are going to be better than your 2021 financials, then that’s what you need to use for your loan application. Getting your tax completed as soon as possible is key!
YOUR MORTGAGE BROKER
If you’re serious about growing your property portfolio, your mortgage broker isn’t someone you should talk to every few years, you should be keeping them in the loop regarding your ongoing plans as well.
Why? Chelsea Burton, General Manager and Senior Mortgage Broker with Crown Money, makes crystal clear the impact a disconnect between you, your accountant and your mortgage broker can have on your ability to continue building your portfolio!
“Often – particularly for self employed clients – the goal is to reduce tax. However that’s in direct contradiction with what banks are seeking as they base loans on how much net profit you’re making…which in turn has a direct impact on how much tax you pay. It’s a delicate juggling act between what you want to achieve in the coming financial year, versus just how much tax you need to pay!”Chelsea Burton, General Manager and Senior Mortgage Broker with Crown Money
That’s why a good and well informed mortgage broker will have your goals for the year in mind, so they can look at how much income you need to achieve and you can work with your accountant to reduce your tax commitment in line with your income and property goals. Minimising your income to pay less tax can have a serious impact on your borrowing capacity!
Next, let’s look at how having a tax debt can impact your borrowing. Generally speaking, banks look at taxes owing in three different ways:
- There’s a tax debt and the bank can’t do the loan, which therefore restricts your lending options.
- The tax debt is on a payment plan, and the lender treats the payment plan as a liability, which can have a big impact on your borrowing capacity.
- If the tax debt isn’t yet due, but you demonstrate that you have the capacity to pay it, then you may still be able to obtain a loan.
“While it’s better if you don’t have a tax debt, if you do then we need to look at the best option for paying that off and the best lending options that we can use to suit your purposes.”Chelsea Burton, General Manager and Senior Mortgage Broker with Crown Money
That’s why, as a serious investor you don’t want to be in the position where you get to the mortgage broker only to have them say “you can’t get a loan because you’ve made no money”, all because you have a really good accountant who‘s minimised your tax to almost nothing!
LET’S HEAR HOW IT WORKS FROM A (VERY) EXPERIENCED PROPERTY INVESTOR!
Luke Harris, CEO and founder of The Property Mentors is a seriously successful property investor, with more than twenty years’ experience and a property portfolio worth more than $30 million dollars (and growing). Read more about Luke’s journey here.
THAT WAS THEN
When just starting out, Luke had the basics covered. He would diligently update his various spreadsheets, gather his documentation together and assemble everything he thought he needed for his accountant to prepare his tax return.
THIS IS NOW
But as his portfolio grew, he realised that he needed to get serious, fast, and so he started treating his portfolio as a business in itself. That’s why now he (not to mention his accountant) keeps his financial and taxation information constantly up to date, so that’s he’s ahead of the curve when it comes to preparing for finance applications. Planning is key. As Luke points out:
“If you don’t have a proper long term plan, most individual investors will receive conflicting information. It’s all about getting the balance right between your accountant and your mortgage broker. They both need to understand the big picture, the goals you’re working towards – and tax time is a really good time to have that conversation with everyone concerned.”Luke Harris, CEO and founder of The Property Mentors
And that’s why, on top of being well and truly financially proactive and prepared, Luke is also a keen advocate for setting goals and reviewing them regularly. After all, if you don’t know what you’re trying to achieve, how can you expect your accountant and your mortgage broker to help get you there?
TAKING IT TO THE NEXT LEVEL
So – if you’re a serious investor (or your aim is to transform your property portfolio into a serious wealth creation vehicle) – you need to know where your money is and what it’s doing. Here’s a list of things you should be on top of:
- How much money do you have?
- What is your net worth?
- Review your superannuation. How much do you have? Where is your money is invested? How is it performing? Could it be working harder for you?
- How much is your property portfolio worth?
- Where is your money is going? Review your bank accounts and statements to see what you’re spending. How many automatic subscriptions do you pay out each and every month? Do you use them all?
- Set a budget, and stick to it.
- Review your achievements last financial year. Did you get the results you wanted?
- Set yourself up for success. Plan for the next twelve months.
Last, but by no means least, be proactive and make sure your accountant and your mortgage broker know what your plans are. The end of financial year is a great point in time to review all of this – after all it happens every single year, at the same time!
HOW CAN A PROPERTY MENTOR ASSIST?
A dedicated property mentor will work alongside you, your accountant and your mortgage broker, not only helping you to plan but keeping everyone accountable to achieving your long term vision.
And here at The Property Mentors that is what we do all day, every day.
We work with you, mapping out your entire journey, and helping with any detours along the way. No matter where you are now, we can help you build a successful, long term property portfolio. Our aim is not only to get you to your next property, but the one after that…and the one after that…
And that is why right now is the perfect time to make sure your investment portfolio is in tip top shape so you can start the new financial year fighting fit!
To learn more, take a look at our EOFY webinar, where you’ll hear more from each of the property experts above, or book in for a free discovery call with one of our mentors and get started sooner rather than later.
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