2021 has been and gone and it’s time to work on those new years resolutions! With travel still hit and miss, a lot of people are focusing their finances towards their investment portfolios.
Why property is still a good investment
There is a multitude of reasons why property is a sensible investment for a range of people. From those who want to get a foot on the property ladder to those who are looking to expand their existing portfolio, below are just a few reasons why property is the perfect investment.
Steady market
Any investment comes with its risks, but the Australian property market as a whole has always maintained a steady growth. Property investment price growth in Australia is still on an upward trajectory.
Less short-term risk
Recent surges in the popularity of cryptocurrencies and the stock market have been at the forefront of investment strategies over the last 12 months. While these strategies have been found to have ‘get-rich-quick’ qualities, it’s an incredibly volatile and unpredictable market, with a large amount of short-term risk. With this in mind, It’s important to remember that property is a long-term game, but has a much lower risk in the long run, delivering a more secure investment.
Tax deductions, equity and capital growth
Outside of a supplementary income stream that comes from rent, owning investment property long-term also opens you up to tax deductions across council rates, loan interest, building depreciation, repairs and maintenance and much more. Alongside this, the right property in the right place will lend itself to capital growth. Put simply, capital growth refers to the increase in the value of your asset over time. In addition to this, long-term capital growth generates positive equity across property investments, which enables investors to borrow against their initial investment property, utilise that equity to purchase another, or access better mortgage rates in future.
Talk to the experts
So, you’ve decided to start or expand your portfolio – congratulations! The next and arguably most important step is to go see an expert! Whether it be an investment advisor, financial planner, mortgage broker, wealth creator, accountant, or buyer agent, utilising an expert’s skills and knowledge will allow them to find what’s right for you in the current market. When it comes to investment property financing, there are so many factors to consider to get the best loan for you and your financial goals. Whether this is your first, second or one of multiple investment properties, an expert is there to help.
Additional benefits of talking to industry experts are their ability to help you plan an investment property finance strategy and tick off the big questions about what finance options are right for you, such as:
- How is your financial situation now?
- What is your borrowing capacity?
- Will you need to finance a deposit? How much will you need for a deposit?
- What kind of loan should you choose?
- Plus any other additional questions you may have
Tax benefits
One key reason property is still a great investment, is the tax benefits. Once you’ve spoken to an expert about your finances for purchase, the next conversation to have is professional tax advice that is tailored to you and your financial situation. Keep a detailed run sheet of every cost related to your investment property to ensure you receive your entitled benefits. Below are a few examples of the tax benefits of property investment:
Capital Growth
Capital growth is an important factor when it comes to property investment. While there are no guarantees that your investment property will increase at a certain rate or over a specific amount over time, historical data suggests that most real estate will experience capital growth over the long term. If you are working towards a capital growth investment property strategy, you will need to keep a close eye on your capital growth rate and ensure you’re able to finance your investment property in the meantime.
Gearing
Some investors will consider the benefits of positive and negative gearing to combat their finances over time it takes for their investment property to gain capital.
Negative Gearing
Negative gearing represents a tax benefit for which property investors are eligible if their costs are higher than the income made on a certain property. Losses can be claimed against an investor’s entire income, increasing their tax return and enhancing their income on investment.
Positive Gearing
Positive gearing, on the other hand, refers to a situation in which the income made on an investment property is in excess of the costs of owning a property. To work out whether this is the case, you must take into account expenses such as loan repayments, the costs of interest, water bills and maintenance costs. Positive gearing is a viable option if you make steady returns on a rental property. It is particularly relevant for investors who don’t have a large taxable income and those who wish to balance their investment portfolio using extra income.
Tax depreciation claims
If you own a rental property, you are eligible to claim tax relief to offset the cost of wear and tear. Broadly speaking, there are two categories under which allowances may fall, including:
Plant and equipment:
This component includes items within the property such as furniture, carpets, window coverings, kitchen appliances, air conditioners and more.
Construction costs/capital works:
This covers expenses related to maintaining the structural integrity of the property, such as brickwork, concreting and stonemasonry.
The reason behind this tax deduction is that the investment property will wear out over time, with most components needing to be replaced every decade or so. Whether or not you are able to claim tax relief is not contingent on who paid for the construction costs.
Overall, property is still a great investment in Australia. Market growth is showing no signs of slowing down and there are many long-term financial benefits. By enlisting an expert to help find what’s best for you in the current market, you’ll be on the right track to growing your investment portfolio in no time!
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Always speak to your qualified financial advisor for tailored advice for you.
