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 2020 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 emerging from the impacts of COVID-19 the changes are not about to stop, and where there is disagreement about the future there is also opportunity.
If you’ve been waiting for your time to come, low interest rates and the easing in access to funds are making property more accessible. These days though, property ownership comes in more varieties than ever before, and the reasons for purchasing have also expanded.
One new twist in our changing approach to home ownership is the opportunity to ‘rent-vest’ 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 continuous 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. If you’re seriously considering a property investment purchase, outlined below are a few tips to get you started.
• Aim to develop a balanced portfolio that includes properties with capital growth potential as well as good cash flow.
• Work with an experienced mortgage broker who can help you understand how much you can borrow, or 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. Many property buyers become trapped in using negative gearing as a reason to make a purchase. Be wary if you’re attracted to a property purely for tax reasons as it’s often a way for the seller to make money rather than a smart purchase that will contribute to your long term profitability.
With careful planning, property can deliver significant returns. Property is now one of the main revenue generating opportunities available in our financial markets today – particularly in Australia. Home ownership is now about more than just shelter, your home can also help secure your financial future and grow your wealth as its value increases.
About the author
Debra Beck-Mewing is the Editor of the Property Portfolio Magazine and CEO of The Property Frontline. She has more than 20 years’ experience in property investing Australia-wide and has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is a skilled property strategist, and a master in sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business. As a passionate advocate for increasing transparency in the property and wealth industries, Debra is a popular speaker on these topics. She is also an author, podcast host, and participates on numerous committees including the Property Owners’ Association.