As time goes on, the property investment market in Australia continues to grow. In the March 2015 residential property exposures from the Australian Prudential Regulatory Authority, it was noted that the value of lending to investors had reached a total of $450.2 billion. That’s 34.6 percent of all home loans, and a 12.4 percent increase on the value of investment loans recorded a year before.
This is likely due to the low interest rates we’re experiencing at the moment, which have allowed people to compare home loans that have incredibly low interest rates. Property is a popular option for people looking to generate wealth or simply secure a long-term asset, but did you know about the other benefits of joining this group of Australians?
There are many benefits that people aren’t always aware of when they decide to make a property investment — here are some that you might have overlooked.
You don’t have to spend money to make money
With this, we don’t mean at the initial purchase of the property. That’s more often than not going to be one of the biggest purchases of your life. But once a property investor has signed the papers and owns rental real estate, there are ways they can create wealth without spending a cent directly.
Firstly, there’s tax deductions based off depreciation. This is where the bricks and mortar that make up a home, as well as the equipment within it, slowly wear down over time. The decrease in value that occurs here can be claimed as a deduction on your taxes! However, you’ll need to get a quantity surveyor to draw you up a depreciation schedule so you can accurately and fairly get this money.
Of course, there’s also capital gains tax to think about for people selling.
Like a fine wine
Interest rate cycles are just that, as are real estate ebbs and flows; one year a market might favour buyers, the next it’s the best place in the country to sell. However, provided you can weather the storms, you might find that investing in a property can be stable when taking a long-term approach, continuing to rise in value despite a few short-term disruptions. It could be an excellent complement to investment funds or other types of wealth generation. Of course, there are always risks with any investment and property is no exception.
Regarding speculation about a property bubble, Real Estate Institute of New South Wales President Malcolm Gunning recently said that “property should be a long term investment which makes you immune to cycles,” which is an excellent reminder of the unusual stability it offers.
Losing money isn’t always a bad thing
Common sense would suggest that if you’re losing money, you’re doing something wrong. However, it can be a strategy that works for property investors. Negative gearing means, essentially, that the costs of owning an investment property outweigh your income from it — it’s an increasingly common strategy.
This is because it offers you tax breaks in the short term, and allows you to spread your wings and secure more investments properties for big capitals gains. And given the strong value increases recorded in the CoreLogic RP Data monthly indices, people are getting great results from it.
The Real Estate Institute of Australia found it might not be those with millions in their savings account that are doing this, either. In fact, two thirds of people doing negative gearing are on taxable incomes of less than $80,000 per year!
There are obvious benefits to being a property investor, and those less clear to the naked eye. What you do is going to depend heavily on your financial situation, but if this is a path you want to take make sure to try out our home loan calculator to process your finances.