Investing in Property
Buying investment property has always been and will continue to be the great Australian dream but you do need a well thought out strategy. Buying investment property has several benefits including the potential to: Generate capital growth, generate rental income and gain potential tax advantages associated with negative gearing. This video covers these 3 investment property benefits. Call Resi Home Loans on 136 126 and we’ll help you realise your investment property dreams.
Video transcript below:
Lisa Montgomery: Buying a home to live in or buying investment property has always been and will continue to be the great Australian dream. When you think about it, it’s how our parents and their parents created family stability and wealth and I am sure at a young age, just like me your parents encourage you not to buy a car or go on that expensive holiday, but to save for a deposit on a house.
So if you are watching this video, it’s likely that you are already thinking about buying investment property. The first thing you need to do is develop a well thought out strategy. Set some goals in line with your financial capacity taking into consideration all the influences and contingencies. Remember buying investment property has several benefits including the potential to generate capital growth, generate rental income and gain potential tax advantages associated with negative gearing. So let’s go over these three benefits in more detail.
Generate Capital Growth
Capital growth is the increase in the value of your property over time. It’s important to consider potential capital growth in your purchase decision. What is the expected increase in the value of the house? Will the property enjoy high demand in the future? And remember high increases in the past are no guarantee of continued high growth. Another tip. Because land value tends to result in greater capital growth, houses are more likely to experience growth than units with town houses. But it really does depend on the area.
When thinking about the rental return you need to answer these questions.
- Expected Income: How much rent can you reasonably expect to obtain?
- Managing shortfall: Are you able to cover the difference, if it does not cover your mortgage repayments?
- Untenanted: And can you afford to pay the loan if the property is untenanted?
So should you choose rental return over capital gain? Some regional areas can attract a higher rental return, but that is usually offset against lower capital growth. In the past, the focus of property investment was to offset losses against income. However, for many having cash flow positive properties is much more valuable and practical. The decision is purely individual though and advice from an accountant is recommended.
Gain potential advantages associated with Negative Gearing
- With negative gearing, you could deduct the cost of owning your investment property from your overall income reducing your tax bill. Costs you can claim as an expense include:
- Rates, water connections, house and building insurance and strata costs.
- Maintenance and repair costs.
- Depreciation of new buildings, improvements and internal contents.
- Interest on your investment property loan and interest on money required to undertake improvements or pay for outgoings.
- And land tax [in some states and in some situations dependent on the value of the land].
As mentioned earlier, you could also positively gear an investment property but finding these opportunities are more difficult and it may also mean that you may be liable for income tax on the positive profit.
I hope you found this video helpful. For more information on buying investment property and investment property loans, call Resi on 136 126 or visit us at resi.com.au.