From family home to financial freedom
It’s the dream held since settlement began in Australia – owning your own home. In centuries gone by, it was enough to own a piece of land and painstakingly build brick by brick. For most, it was a chance to literally put a roof over the family’s head, although for the wealthy, property came with an abundance of space, opulence and bragging rights.
These days, many Australians have started to see property not just as a home, but as a wealth platform and income generator, particularly after the significant price increases some suburbs have achieved over the past few years. And, there is evidence to prove this – Australia’s 2018 AFR Rich List showed four property investors in the top 10, and 51 in the top 100 wealthiest individuals.
Attitudes towards property ownership are continually changing. With the market dropping in many areas and a change in government on the horizon, the changes are not about to stop. But, where there is uncertainty about the future there is also opportunity.
As strength in the market deteriorates, prices fall and suddenly the deposit required for a property falls too.
If you’ve been waiting for your time to come, low interest rates and lower prices are making property more affordable.
The new twist in our changing approach to home ownership is the opportunity to ‘rentvest’ which accommodates the ability to rent where you want to live, and purchase property in a range of different areas. This approach opens up the ability for more Australians to enter the property market at a reasonable price point, and then leverage any gains into further purchases or a portfolio that delivers an income.
An investment property, or portfolio, is a goal for many Australians to forge a path to financial freedom in retirement. While potentially lucrative, no property deal is a sure bet, and it’s important to get personalised advice to fit your situation. But there are a few tips to get you started.
• Aim to develop a balanced portfolio that includes properties with capital growth potential as well as high yield potential.
• Work with an experienced mortgage broker who can help you unlock the equity in your home to either start your investment portfolio or make your first purchase.
• Decide on your appetite for risk (which might relate to your age and how quickly you need to generate an income from property) and your appetite for a renovation. One person’s mini-renovation can be another person’s nightmare, and what seems to be a bargain can turn into a money pit.
• Ideally avoid ‘new’ developments, off-the-plan or house+land purchases as they’re often overpriced and will devalue quickly – this will impede your ability to build equity and slow your portfolio growth.
Of course any potential money-making opportunities come with their own traps and that other ‘T word’, taxes. A property used to generate income is treated as a business, meaning expenses (including loan interest and depreciation) are deductible for tax purposes. This concept is known as negative gearing, and means that property owners can use deductible expenses to generate cash flow. The current tax law in Australia allows those tax losses to be offset against your personal tax liability.
And this leads us to the Federal election battlefield. Labor plans to overhaul negative gearing, specifically the ability to offset losses from future property investments against employment income.
With careful planning, property can deliver significant returns. Property has become one of the main revenue generating opportunities available – not only in Australia but globally. Home ownership is about more than just shelter, your home can also help secure your financial future and grow your wealth as its value increases.