In Australia, the national past-time seems to be to save, save, save for a house deposit! People are making all sorts of sacrifices to get that all-important deposit together – from living with mum and dad into their thirties to sacrificing life’s little luxuries. But why are so many Australians so very focused on owning their own property?
Besides providing a cosy nest of your very own, buying a property can potentially open up a world of wealth building opportunities – for your long-term benefit! Whether you’re buying your own home or an investment property, homeownership could be a good move to help you get ahead financially. So get ready to start feathering your nest! Here are a few reasons why real estate can be used as a powerful wealth generator.
Capital growth potential
Real estate has real potential to increase in value over time – this is called capital growth. That’s because the supply of housing is often insufficient to meet demand, supporting growth in values.
Whether you’re buying your home to live in yourself, or you’re buying a property as an investment to rent out to tenants, capital growth is going to be very beneficial to your financial situation. If the value of your property increases, you could potentially make a nice profit when you sell, particularly if it’s your own home. Alternatively, you could access the capital gains (known as equity) as you go along by refinancing your loan – effectively using the property as a money tree.
Make more investments
Money tree you say! We all know that money doesn’t grow on trees, so how does that work?
If you refinance your home loan you can access your equity, which gives you funds that you can spend how you like. If you’re focused on building wealth, you may wish to use it as a deposit for an investment property. Once some time passes and your equity builds in that property too, you could refinance your loan again and use those funds as a deposit for your next investment, and so on. In this way, your nest egg could potentially keep growing and growing.
This is just a broad outline of how property investment works. We recommend that you talk to a professional financial planner to help you formulate an investment strategy that’s right for you. Just ask us if you’d like a recommendation.
As mortgage brokers, we’re not tax advisors or financial planners. But generally speaking, property investment is a very popular form of investment, mainly because the Australian Taxation Office supports it with tax benefits.
One popular strategy is to ‘negatively gear’ your investment property to reduce your taxable income. Negative gearing is when the expenses associated with owning the property (including interest on the loan borrowed to finance the property) are greater than the income it generates. You can claim any net losses against your taxable income and in this way, reduce the tax you’ll have to pay on the money you earn in your job or by other means – all whilst your property investment makes capital gains. Once again, talk to your accountant and financial planner to be sure that a negative gearing strategy is right for you.
Buying real estate could be a smart move for you financially, whether you’re buying a home to live in or are investing in property to rent out to tenants. We’re here to help you maximise your financial position and obtain a loan that’s suitable for your purposes and goals. Talk to us about how buying a property could benefit you – we’ll help you to determine your borrowing capacity, get pre-approval on your loan and can even help you with insightful property data to assist you with locating and purchasing the right place. Just give us a call and we’ll be happy to chat with you about your plans.