Considering property investment
- 24 October 2017
Creating a nest egg for the future is an important decision for many Australians. While investment options include stocks, bonds and even cash savings, property has always been a popular choice for those wanting to build an investment portfolio. Whether or not you’re an experienced investor, property investment (depending on your circumstances) can be a good opportunity to grow wealth. We’ve created this guide to assist you with gaining a greater understanding of property investment.
What are some of the different types of property investor?
There are many types of property investors in the Australian property market, and these include individuals, families, trusts and even foreign and local companies. The following groups represent some of the most common types of property investors:
- High-income earners, or double-income families: Families and individuals with a high income can make ideal investors, thanks to a higher level of investment potential. These types of individuals and families may have already purchased a home for their primary residence but are now looking for ways to cleverly invest their income for the future.
- Savvy developers: For those with a good knowledge of the property development industry, property investment is a natural decision. Understanding the intricacies of property development involves having an intimate knowledge of up-and-coming development opportunities and how to leverage these for long-term profit.
- People looking for a growth investment: Investors come in all shapes and sizes, and at all income levels. Investors looking to hold on to property for an extended period of time[KG1] may benefit from capital growth on their property after several years or more. The growth of the investment will depend on several factors, including individual circumstances (how much you are able to invest initially and how quickly the mortgage is reduced), conditions of the property market, and the economy as a whole.
What does property as a long term investment look like?
Where property is concerned, a good investment for many, will be one which is likely to increase in value in the long-term. Of course, determining if the property you choose fits this description can be complex. Some of the major factors to consider include (but are not limited to):
- What is your budget and how will the investment affect your cash flow?
- What are the median house prices within the area you’re hoping to purchase?
- Have you considered purchasing in an area which is set to increase in average housing value over the coming years?
- Are you hoping to buy a new or existing home and have you considered the ongoing costs of purchasing an existing home versus the relative ease of buying a new home?
- What are the fees and taxes associated with the investment (such as capital gains tax) and will these affect your decision?
Tips for finding a good investment
Fortunately, there are a range of tools and strategies which investors can use, to find a suitable investment property. These include (but are not limited to):
- Shopping around for developments in up-and-coming areas
- Consult resources such as realestate.com.au for house pricing and sales information in the suburbs you’re considering
- Understand your legal and financial obligations by consulting a financial advisor, your accountant, lawyer and even a buyer’s agent in your area
- Choose a property in good condition, which is unlikely to involve any unexpected costs or repairs
- Invest in family-friendly properties, which are easier to sell in the future
What does property investment mean for tax?
Negative gearing is an often misunderstood option for property investors. Negatively geared properties are those which incur higher costs to own and maintain (including servicing the loan) than returns from rental income. Negative gearing allows eligible investors to offset these costs against their taxable income, thus making it tax effective for many Australians to enter the property investment market, depending on their circumstances. Negative gearing is not the only taxation and income consideration to make and you should consult your financial advisor or accountant on this area and the areas discussed below. Other investment factors to consider include:
Land tax and ownership: Each individual may be eligible for a land tax exemption in the state or territory where the home is purchased. Structuring the ownership of your property to make the most of this exemption is something to consider when buying and investing in property. Find out more about land tax, and the exemptions that apply to Queensland properties here and to NSW properties here.
Capital gains tax: Any gains made on the sale of a property will be taken into account when taxable income is calculated. With the exception of the family home, the sale of a property may result in extra tax payable where a profit has been made. You can find out more about CGT and possible discounts which may apply via the ATO website.
Whether you’re a seasoned investor or considering starting your investment portfolio from scratch, the Australian property market is currently considered by many to be an excellent place to invest your wealth. If you’re considering investing in a new property, get in touch with the team at Villa World today and find out what options are available to you.