Build Wealth by Investing in Property
Investing in property to build your wealth makes sense. Property can be a solid investment that can offer you regular rental income, capital growth and tax benefits. Remember that property is a long term investment and you should be willing to keep it for at least 10 years.
Here are some tips for anyone considering property investment.
- Work out how much you can afford to spend and as well as how much you’re able to borrow. It’s worth getting a loan pre-approval before you go further
- Be aware of the risks involved in renting – there could be a rise in interest rates, no tenants or a drop in property prices
Your strategy – capital growth vs higher rental
- Property investment can give you two types of financial returns – capital growth (growth in the value of your property) and rental income.
- Generally properties in regional areas provide a higher rental return however may not attract as much capital growth over time.
Budget for the extras
- Be aware of all the costs involved in buying and managing an investment property. Think about building inspections, stamp duty, borrowing costs, legal/conveyancing fees, real estate fees, insurance, body corporate fees, council rates, water rates and land tax.
Choose the right property
- What and where you buy plays a big part in how successful your investment in property ends up. Find out as much as possible about the areas you are interested in buying in.
- Tenants generally prefer locations close to public transport, shopping, cafes, parks and schools.
Get the right loan
You need to find a loan with competitive rates and the flexibility you need to manage your investment.
- Loans with either fixed or variable interest rates
- Interest only loans which you don’t pay anything off the loan amount itself, you just pay interest
- Line of Credit which allows you to draw on the equity you have in that property
There are a few things about owning an investment property that will impact on the tax you pay.
- Negative Gearing – when the cost of owning your property is more than the money you receive in rent which could lead to possible deductions on the amount of tax you pay
- Tax Deductions – apply for certain expenses relating to your rental property
- Capital Gains Tax – a tax you must pay on the ‘profit’ you make when you sell your investment property
It’s worth getting professional advice on any tax considerations.
Manage it well
- Managing your investment property involves finding tenants, collecting rent and arranging for maintenance and repairs
- Most people decide to use a real estate agent to manage their investment property