Thinking of investing in property? Here’s what you should know
If you’re thinking about buying an investment property in 2018 but you could benefit from some guidance, you’ve come to the right place. We understand that dipping your toes into the world of property investing can appear daunting, that’s why we’re here to bring confidence to your decisions.
Let’s start by looking at the main three benefits of property investment:
- Capital growth
Capital growth is the continued growth in the value of your property over time. This strategy generally requires you to hold onto the asset over a longer period of time.
As an example, if you purchased a property in 2013 for $300,000 and it grew in value by 5% each year it would be worth $383,000 in 2018 and you would have made an $83,000 capital gain, minus any expenses and taxes.
- Rental and investment yield
Rental yield is the money you earn from rental income minus the expenses you incur owning the property. With the right structure, a property investment can generate a monthly income stream and high investment yield. Investment yield is the yearly amount of rental income you earn divided by the total loan deposit you made.
As an example, if you have a property worth $500,000, and you earnt $25,000 in income from the property, your gross yield would be 5%.
- Tax benefits
There are tax advantages for all types of property investors; you can claim expenses you incur owning the property and deductions for depreciation. Negative gearing your investment property is also an option and allows investors to offset losses they incur in their property investment against their taxable income.
Why existing home owners might choose to buy an investment property
If you’re an existing property owner who has paid off a chunk of their loan, you may be able to borrow to purchase another property without having to put down a deposit or make a large upfront financial commitment, because there is equity in your existing property. The more equity you have the better, as the lender could be more willing to approve a higher loan amount.
But what if you’re a first home buyer? Can you still purchase an investment property? The answer is yes, but be mindful that this may have an impact on whether you will qualify for First Home Owner Grants.
It’s not uncommon for property investors to purchase an investment property the first time that they buy a property. This is partly because banks may increase the borrowing capacity if you apply for an investment property. The bank will also factor in the rent that you’ll earn from the property, as well as your income. Purchasing an investment as your first property can be a great way to build a solid financial foundation for the future. You’ll get all the benefits of owning a home and building equity in a large asset.
If you’re thinking about investing in property, get in touch so we can talk about your options.
*As with any financial scenario there are risks involved. This information provides an overview or summary only and it should not be considered a comprehensive analysis. You should before acting in reliance upon this information seek independent professional lending or taxation advice as appropriate specific to your objectives, financial circumstances or needs.