- Buyers Advocates
- Property Management
Is it financially smarter to buy an investment property to rent out
or a home to live in?
This is a vital question that all Australians should ask themselves.
Owning your own home was once considered the apex of the Australian dream. Over time, however, the Australian economy has changed and the advantages of home ownership aren’t as beneficial as once thought. While Australia is a wonderful place to live in, the small population, lack of housing development across much of the land, and a cultural desire to live by the coast has meant that property prices have skyrocketed, propelled upward by the demand to live near the city.
As one of the world’s most expensive countries to live in, with the second least affordable housing market in the world (after Hong Kong), home buyers need to be savvy about what property they buy, and why. Unlike other first world countries, such as the USA, Ireland, and the UK, paying off a mortgage on a home you own within a 10 year period isn’t feasible for most people. In fact, it’s barely feasible to pay it off in twenty. There’s a new Australian dream that has evolved out of the old school thinking of “I must own my own home”, into “I must build a property portfolio”.
The reason for this is not only due to the benefits of having an investment property, opposed to the liability of owning the house you live in, but also a changing cultural attitude: Most people will not live their entire lives in the same place, and will therefore lose out when they decide to sell. Owning your own home is a restricting liability as well, as the mortgage repayments generally don’t allow you to take career breaks, extended travel, or take financial risks for a new business or life abroad.
Owning an investment property allows you lifestyle flexibility, the option of moving to different places as you desire, and makes you money in both rental returns and capital appreciation.
In order to understand the risks associated with owning your own home, they need to be compared with owning an investment property. So, how do they stack up?
The expenses racked up when you own your own home are enormous. The mortgage interest alone is enough to prove that it’s not a sound investment decision, but when you take into account closing costs, repairs, improvements and renovations, property taxes, and insurance, you begin to see that the costs of owning your own home go well beyond the initial sales figure.
Appreciation happens, but it isn’t guaranteed, and when inflation is the key driver, you’re in no better position as you were yesterday. Why? Because if your house is appreciating, so is everybody else’s, meaning everybody remains on a level ground. When this happens, sure, your property might be technically worth more now, but so is everybody else’s, meaning the risk you took in owning the home hasn’t increased your purchasing power one bit. And the result? The capital you made on your home doesn’t allow you to upgrade after you sell, it merely allows you to move sideways.
Unfortunately in life, nothing is guaranteed, and the exact same applies to property ownership. Refinancing for depreciative expenses, buying at the top of the market, or even losing your house to the bank, can all erase any gains you’ve made over the life of the mortgage repayments. The liabilities that come with a home mean that should things go wrong, you could lose it all, and be left homeless.
Since your tenants pay a majority of your expenses, if not all of them, you have little to no out of pocket payments for owning the investment property.
If appreciation happens, then that’s great. It’s one of the upsides of owning a property. Provided your property is cash flow positive, if you are forced to sell then there’s no loss on you, because you still made money from the rent.
The same rules generally apply to investment properties as they do your own home. Do not refinance unless it’s for further properties, and do not buy at the top of the market (since properties have already hit their price ceiling and are expensive anyway, there isn’t a lot of money, if any at all, to be made on them).
Another great—and popular—reason for investing in property is due to the range of tax benefits you can incur. Property investors can decrease their payable tax, by claiming depreciating assets, structural improvements (renovations), and most borrowing costs. Items such as refrigerators, air conditioning units, stoves, and hot water systems can be claimed, as can building costs, construction, and structural expenses, even if they were made by the previous owner.
For property investors, the tax benefits only continue: advertising for tenants, body corporate fees, professional cleaning services, council rates, land tax, pest control—even Foxtel and internet charges can be tax deductible if you supply them to the tenant.
Rent money is only dead money if you’re not investing. For example, if you own an investment property, which is generating similar rental yields to what you are paying, then effectively, your tenants are paying your rent for you.
No, because you cannot take advantage of tax benefits unless you have an investment property. In some cases, investment properties can get you up to $10,000 in tax deductions! Australian tax law works in the favour of property investors, enabling you to become wealthier and achieve financial freedom sooner.
The importance of building a foundation, by focusing on investment properties, cannot be stressed enough. Your borrowing capacity will be stronger, so you can buy more properties sooner. If you have a dream of owning your own home one day, building a solid foundation first will allow you to buy a nicer home in the near future, and own it faster, if you begin your quest into property with an investment.
The income you earn from these properties will help you to make more money, and when they appreciate, you can choose to sell one of your properties in order to pay for your dream home, while still keeping your other properties as a passive income stream.
Owning an investment property is essentially you hedging your bets. If by chance you lose your property to the bank, you still came out on top as you were making cash flow along the way. There are fewer risks and more rewards with owning an investment property rather than a home, as it allows you the freedom to build a wealthy property portfolio and achieve the new Australian dream.
We’ll show you how no matter your financial circumstances, building a property portfolio is possible for everyone.
Most people need help in addition to your wage and super to achieve these goals. Property Investment is very attractive at the moment with low interest rates and rising house costs across the country BUT…
There is no guarantee of success in property investment, and if you don’t understand how it works – the chances are you’ll be like 98% of all property investors who never reach their goal. Below are 10 strategies that will secure your success.
At Alliance Corp upcoming workshop 27th March we will cover why you should…
If you’re like most Australian’s the dream of paying off your mortgage sooner rather than later, working less, having more holidays, achieving financial independence with a secure retirement plan may seem impossible on your current wage. The reality is that you will need help in addition to your wage and super and for many people they have chosen property investment. We can see it, touch it and we live in it and know that over time it’s always going to be worth more. Makes a lot of sense. However most property investors will never realise this dream because they simply don’t understand the reality of what it takes to makes this strategy work.
There is a whole industry that preys on these desires and dreams and pushes the buttons in the advertising. They push ‘off the plan’ properties at people like you with a promise of helping you reach your dreams. But they never educate you on how property investment works, and the correct strategies to take to make sure you reach your goal.
There is no guarantee of success in property investment, and if you don’t understand how it works – the chances are you’ll be like 98% of all property investors who never reach their goal. Most of our clients share similar goals as mentioned above, however each situation is different. At alliance Corp we will help you tailor your portfolio to your specific needs, however our multi property strategy allows you to achieve your goals in a strategically planned way over time that doesn’t expose you to short term risks.
Our interest is in helping you develop a property investment plan that matches your goals. It’s why we don’t sell properties – we help you buy them. It’s why we don’t buy in certain locations. And it’s why we insist if you’re going to do it right – you need to be thinking about buying multiple properties in a portfolio as fast as possible.
If you want to learn more join us at our next workshop where Jason Paetow will talk about the key steps in planning for and executing a multi-property investment strategy. With respect to the type of properties, Jason will also explain how the type of property purchased will depend on the individuals specific plan.
Jason Paetow has built his own multiple property portfolio and has purchased and built wealth from off-the-plan, renovations,
established houses, negative and positively geared properties.
His unique approach means anyone with some equity in their home and a reasonable income can invest in a multiple property
portfolio without risking their own money, or worrying about economic changes, loss of job, loss of income or changing family circumstances. For example, Jason will show you how to set up a structure with a buffer that protects you against almost any eventuality. Its a very low risk approach with proven success!
CLICK HERE TO BOOK for the next workshop on Thursday 27th March 2014 in Collins Street, and you’ll learn about;
More and more people today are moving nearer to the central business district (CBD) of various cities. This has now become the trend, considering that a few years ago people were fine living in the farther rural towns which were hundreds of kilometres away from the city centre. With all the businesses booming in Brisbane right now, many of Australia’s population have decided to get a piece of the wealthy cake and move-in closer to where all the money is.
According to the national census conducted by the local government, around 60% of the residents living right now in Amberley, the most densely populated suburb near Brisbane, admitted to have lived somewhere else and just moved in town within just a year. Population experts believe that this boom in the number of new tenants in Amberley is caused by the Royal Australian Air Force Base just a few kilometres from the suburb. This makes living in Amberley a very wise and logistically-reasonable choice, given that the airbase houses more than 3000 employees. In addition to Amberley, people are also investing in land surrounding the CBD, which includes houses in Spring Hill, Fortitude Valley, and South Brisbane—all of which reported around 40% of the current population to have been from somewhere else just within the past year.
A resident of South Brisbane, Karon Yesberg, believes that the increasing number of people investing in properties around the CBD comes as no surprise. She said that people are flocking to areas near the city mainly because most of the workforce now has offices within the city districts, bringing their families with them. She also said that regardless of the location of the work, families are moving within CBDs because of the well-developed land in such areas. Another reason is that there is utmost convenience in living within CBDs, since commercialised areas which have grocery stores, restaurants and entertainment hubs make sure that living in these areas would be far from being dull and lifeless.
Consequently, a number of people who are investing in properties much further away from Brisbane have significantly decreased. Real estate report shows that the rural towns of Burbank, Mount Ommaney, Chuwar, and Mackenzie recorded a change of household of less than 60 houses only for all of the 4 towns. This only shows that residents who live a greater distance from the CBD have a greater tendency to not leave at all. In an interview done by News.Com.Au, one of the residents, Tina Saidi, said that people who start living in these places at a relatively young age decide to not leave at all—mostly because of the less population density, and also because they are learning to love the peace and space that comes with it.
Be it investing on areas near or far from the CBD, AllianceCorp will guide as you look for the right property where you can put and grow your money on. We have helped investors from all over Australia and other parts of the world, analyse the market and find the real estate property with the greatest potential. Contact us today and speak with one of our expert investors advocates!
The Suncorp Bank report published 31 JAN 2014 on realestate.com.au looks at crime rates, health and availability of health resources, education resources and quality of schooling, housing costs and unemployment, while also considering income, childcare resources, broadband internet connectivity and community spirit. Cities that place high have a strong balance between work opportunities, lifestyle and safety.
Click the link to explore the neighbourhood, suburb profiles and market data.
1. Wagga Wagga (NSW)
2. Canberra (ACT)
3. Albury-Wodonga (NSW/VIC)
4. Toowoomba (QLD)
5. Sydney (NSW)
6. Hobart (TAS)
7. Ballarat (VIC)
8. Bendigo (VIC)
9. Melbourne (VIC)
10. Mackay (QLD)
Source: Suncorp Bank’s Family Friendly City Index