Property Investment is More Affordable Than You Think

Getting the right advice and buying the right property makes property investment more affordable than you think. 

 

It might surprise you but investment properties can be much more affordable than owning your own home.  If you buy the right property, your tenants and the ATO can pay for most of your ongoing costs. You don’t even have to be earning an enormous salary. 

 

This is the benefit of negative gearing. When the cost of holding an investment property exceeds the income it generates, that amount is deductible from other income sources such as your salary.

 

Here’s a simple example of how it works. If you have an investment property with an income of $18,000 and holding costs of $34,000 per annum, it generates a loss of $16,000. The following chart shows how much of your holding costs are covered by your reduced income tax.

 

Income	Tax Rate*	Benefit/year
$0 - $18,200	0%	$0
$18,201 – $37,000	21%	$3,360
$37,001 – $87,000	34.5%	$5,520
$87,001 – $180,000	39%	$6,240
$180,000 +	47%	$7,520

 

 

 

 

 

 

 

 

 

 

*Includes Medicare Levy

 

Negative gearing is not the only important way of increasing the affordability of your investment. An excellent property manager is crucial as they decrease the risk of vacancy by choosing the right tenants. By taking out Landlord Insurance, you can protect your cash flow if the property does become vacant for a period.

 

Because of the tax deductibility of losses, it’s important to fund your investment property with an interest only loan. If you have spare cash, it’s best to use it to pay down the principal on your home loan, if you have one, as those borrowing cost are not tax deductible.

 

Depreciation is another way to enhance the affordability of investing. You can claim the declining value on the fixtures in your investment property against your income. It’s also a good reason to consider buying new properties. From this year, depreciation is only available on fixtures you have paid for yourself.  If you buy an existing property, you can no longer claim depreciation on fixtures former owners have installed. 

 

Finally, affordability is helped when you choose the right kind of property. In the long run, buying a cheaper property can cost you more due to higher maintenance costs and an inferior pool of tenants.  Try to purchase properties that median income earners in the area can afford to rent, which will be attractive to a wide variety of tenants.  

 

If you have any questions about how to make property investment affordable for you, why don’t you contact us today for trustworthy professional advice.