Why Invest in Property?
1. More millionaires have been created through property than any other form of investment.
Most extraordinarily wealthy people have used real estate profitably, there is no reason why you shouldn’t also enjoy the benefits.
2. Anyone can do it
Property investment is not just for the wealthy. It doesn’t really take large sums of money to get involved in real estate. This is because banks will lend you up to 80% against the security of residential property, which means that most Australians with a steady job and a little capital behind them can afford to buy investment properties.
3. Security
Banks have always recognized property, and especially residential real estate, as an excellent security. The reason they’ll lend you up to 80% of the value of your property is that they know property values have never fallen over the long-term. In fact, the entire Australian banking system is underpinned by the continual growth of residential property.
4. Income that grows
The rental income you receive from your investment property allows you to borrow and gain the benefit of leverage by helping you pay the interest on your mortgage. Over the years the rental income received from property investments has increased at a rate that has outpaced inflation.
5. Consistent capital growth
Good capital city residential property has an unequalled track record of producing high and consistent capital growth. Over the past 25 years the value of the average property in all capital cities has doubled in value every eight to 10 years.
6. You are in control
Property is a great investment because you make all the decisions and have direct control over the returns from your property.
7. Tax benefits
Property investors can take advantage of a range of tax benefits including tax deductions and depreciation allowances.
8. You can add value
There are hundreds of ways you can add value to your property, which will increase your income and your property’s worth.
9. You don't need to sell it
Unlike most other investments, when real estate goes up in value you don’t need to sell to capitalize on that increased value. You simply go back to your bank or mortgage broker and get your lender to increase your loan.
10. Most forgiving
Even if you bought the worst house at the worst possible time, chances are that it would still go up in value over the next few years. History has proven that real estate is possibly the most forgiving investment asset.
SIX REASONS TO BUY A PURPOSE-BUILT INVESTMENT PROPERTY.
- When purchasing a property before it is built you pay only the stamp duty on the land. Where the land is $200,000 and the house completed is $500,000 the saving is $12500. That is $12,500 more in your pocket before you even start.
- The depreciation amount will be higher for a new home than an older property.
- A purpose-built investment home is designed to reduce maintenance costs.
- Tenants have different needs compared to owners. Purpose built properties are designed to attract above average tenants who are prepared to pay more than your average tenant.
- Being new and built for investments tenants are more likely to sign longer leases. It also gives them a better feeling of long term security.
- Some investment properties come with a 3 year rent guarantee.
New purpose-built investment properties give extra initial financial benefits to the owner, they have less, almost no maintenance costs, they attract a better-quality tenant who usually looks after the property and who usually stays put for a much longer time. resulting in almost zero vacancy factor.
Secrets to Building Wealth in Real Estate
Depreciation - A gift from the tax man
A new 4 bedroom house purchased for $610,000
Scenario without depreciation claim
| Annual income ($540 x 52 weeks) | $28,080 | ||
| Annual expenses | $40,000 | ||
| Pre-tax cash flow (expenses less income) | -$11,920 | ||
| Total taxation loss | -$11,920 | ||
| Tax refund (tax loss x tax rate of 37%) | $4,410 | ||
| Annual costs of the investment property | |||
| (pre-tax cash flow + tax refund) | -$7,510 | ||
| Weekly cost of the investment property | -$144.00 |
Scenario with depreciation claim of $11,200
| Annual income ($540 x 52 weeks) | $28,080 | ||
| Annual expenses | $40,000 | ||
| Pre-tax cash flow (expenses less income) | -$11,920 | ||
| Total taxation loss (pre-tax cash flow + depreciation) | -$23,120 | ||
| Tax refund (tax loss x tax rate of 37%) | $8,850 | ||
| Annual costs of the investment property | |||
| (pre-tax cash flow + tax refund) | -$3,070 | ||
| Weekly cost of the investment property | -$59.00 |
By claiming depreciation, the annual outlay for the property is reduced to $3070 per annum or $59 per week.
This was a difference of $85 per week .
Disclaimer.
This scenario is based on a fictitious property. Some of the figures quoted are assumptions and should only be taken as guide only. A quality surveyor should be engaged to accurately quote on any depreciation schedule. There are different methods of depreciation such as diminishing value or prime cost. It is important to work out which is the most suitable for you as once you use one method you are unable to change to the other.
