Investment Loans
Investing in property is one of Australia’s biggest asset classes. Nothing beats bricks and mortar, right? Well, before you make a decision to invest in a property, here are 3 things to keep in mind!
Am I buying for capital growth of cash flow?
A property gives you two things: cash flow from the rental income and an increase in your wealth through the value in your property increasing over time. There are some properties, particularly those in regional areas and apartments that offer a relatively higher rental income, but prospects for growth are moderate.
Then there are other properties, such as traditionally homes in the suburbs, particularly close to the CBD that offer great prospects of growth, but the rental income is not that high.
Of course, there are exceptions. If your goal is cash flow, then you want a property that puts money in your pocket each week. More specifically, the rental income is more than enough to cover the loan repayments, and then some. If your goal is growth, then your rental income will not be enough to cover your loan repayments. You’ll have to dip into your own pocket each week to service your loan.
Of course there are exceptions. Think about the best strategy that suits your goals: cash flow or growth.
2. I need to buy the best house in the best suburb?
No, you do not need to buy the shiniest, newest, biggest house in the best suburb. Most of us will struggle to have enough funds and borrowing capacity to buy in the best house in the best suburb. After all, think about the loan repayments for a $5m property in Toorak, Victoria or Bondi, NSW.
The property you buy, and more specifically the suburb you buy in needs to fit certain criteria. Ask yourself, has this suburb seen growth in the last couple of year? What’s the proportion of renters to how owners in this suburb? Does the property have renovation potential?
3. Everyone talks about the tax deductions available when buying an investment property. What the hell does this even mean?
Tax…We hate it as much as you do. It’s part of life, so might as well learn to live with it. When you buy a home to live, you have virtually no tax deductions. Any repairs you make on the house are not tax deductible. The interest you pay on your home loan is not tax deductible. You cannot claim depreciation for the property.
The opposite is the case with an investment property. The Government wants people to buy investment properties. The carrot they dangle, among others, is the tac deductions you can claim. The interest you pay on your investment loan, the repairs you do, the property management fees you incur, and the depreciation of the dwelling are all tax deductible. Long story short, this means your taxable income is reduced by a certain amount. What does this, you pay less tax than you otherwise would.
