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Why to consider purchasing an investment property
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Investing in property has always been considered a sound investment strategy. Many people like the aspect of having a ‘bricks and mortar’ investment and according to AFG (Australian Financial Group), property in Australia is typically considered a solid investment due to a trend of steady and consistent increases in value over time. This trend usually occurs over a seven to ten-year cycle with highs, lows and steady stints in between.
 
Every investment scenario is different and requires its own due diligence, however property investment can provide a range of benefits to investors.
 

Regular Income 

Becoming a landlord means that you will now receive rental income from tenants. By ensuring you choose an area that is attractive to renters - near transport options, shopping precincts and entertainment areas; the more likely it is to be rented for longer periods of time. Also important is choosing the type of housing option that will appeal to the mass market within your chosen area - a small apartment, or terrace home or a single storey dwelling? What are people looking for? The more suitable housing option you choose and the better location, the more likely it is to be rented on a long-term basis, providing you with a regular income.

Another aspect that drives the popularity of property investment is negative gearing, but you need to understand how it works. The National Australia Bank explains that a property that is ‘negative geared’ occurs when the cost of the home loan for the investment is greater than the rental income received from the property and according to Canstar, if you are in this situation, then you are entitled to claim a tax deduction for that loss within the financial year. As well as the tax concessions on offer for negative gearing, you can still make a long-term profit on your investment if the value of the property increases – but note that you are likely to have to pay capital gains tax on that profit. 
 

Capital Growth

If you are prepared to hold the property for that seven to ten-year cycle, you may see growth in the capital value of your investment. This will mean a greater profit but be aware that when you sell, you’ll also be subject to capital gains tax on this profit, so ensure you build this into your calculations when deciding if property investment is for you. There are a number of ways to reduce the amount you may have to pay for this including owning the property for longer than 12 months, which entitles you to a 50% reduction in this tax, however it is important to remember that you are only paying the tax on profits, not the overall investment, which means that it is likely you should come out in front.
 
Couple at park in Golden Bay
 

Taxation Benefits 

There are a number of tax benefits available to owners of investment properties. While individual circumstances may differ, some of the things you can claim back on tax are advertising for tenants, loan interest, council rates, strata fees, property maintenance and building insurances. These expenses can be used to offset your normal tax bills and reduce the operating costs associated with an investment property, so to make sure you access all the benefits available to you, you should speak to a specialist tax advisor. There are also lots of helpful tips within the Australian Tax Office website

Investment Diversification 

Most financial experts will recommend having a diversified portfolio of investments that allow you to reduce the risk associated with any downturns in certain market sectors while maximising your potential returns. For many people the family home will be the main investment followed by company shares and bank accounts. While it is dependent on market conditions, investment properties can have the benefit of providing both regular income and capital growth that may exceed the return from other investments. This means that overall a diversified portfolio that includes an investment property may outperform single-stream investment strategies which are more subject to individual fluctuations within different investment types.
 
Everyone’s personal circumstances are different, so the key to financing an investment property, as with any investment, is ensuring you don’t over-stretch yourself and that you work within your financial limitations.
 
Property investment has shown to be a reliable long-term financial decision, however this ultimately depends on your personal situation and we would recommend you discussing this strategy with your financial advisor or a financial institution. Within the various Peet Communities around Australia, there are a number of locations and housing options available that may be just the right fit for you to take your first step into property investment or grow your investment portfolio.
 
 
 
All content within 'Peet's Advice Blog' (Blog) is for information purposes only. While Peet endeavours to ensure all information is current and correct, Peet makes no representation or warranty as to its currency or accuracy. It is recommended that you obtain your own independent advice before taking any action following reading any of the contents of the Blog. Please read the full disclaimer here.

 

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