First Investment Property
It is a vehicle to build tangible ‘brick and mortar’ assets – literally! As a business it has the advantages of writing off the costs against tax. Meaning that some of your PAYG tax can be offset against the investment costs, most notably the interest and depreciation.
An asset is something that has value and can be sold, can earn an income, an investment property has the added advantage of being tangible, ie the land component will always exist, and ultimately has scarcity attached hence the longterm trend of property in urban areas growing by an average of 6%-7% over the last 100 years. Growth has closely matched the share market BUT with shares you can back the wrong horse and lose ALL your money if your tip is a dud. Property has significant long term predictability.
Investing is less emotional than buying our own home. It’s not about our preferences for style of build, suburb etc. It’s balancing risk and reward, and time you’re willing to spend time, which you may not have. Your borrowing capacity initially determines if, when or what you can afford to invest. Banks are currently in very cautious mode and you will find they will value your home well under what you’d expect to sell it for. Entry level investing will require minimum $160K equity and household income of $110K+, if your current mortgage is higher than $400K you may find the income and equity component will need to be higher.
If you’ve ever played Monopoly you’ll understand that wealth is accumulated fastest by those who have income generating assets. Savvy investors don’t play the game of get rich quick, trying to guess market trends, buying low and selling high. No one has a crystal ball and the costs incurred in turning over property frequently will churn your profits. The key is to buy and hold. Currently property values in WA are at a 6 year low, so is at it’s most favourable now especially as the cost of borrowing money has NEVER been cheaper, but even if you bought at the peak, you’d still be generating an income, derving tax benefits and gradually paying it off – which is the goal, not just to garner tax benefits but to eventually own ASSETS. If you work off a 15-20 year plan, the timing won’t matter too much.
Identify WHY you are working, the long game. When do want to stop and how much money will you need? If all your future retirement prospects are in Superannuation, ask yourself how comfortable are you with all your eggs in one basket. Start with an overview of how it all works, demystify it. Get comfortable talking about money. Overcome the the biggest obstacle to your financial future, which is the illusion of time poverty. We all have 24 hours in a day.
To achieve our goals we have MAKE time.
Going on a first date, taking driving lessons, back
packing throughout Asia, going to Uni, starting a business all come with anxiety inducing risk. We risk time, failure, ego, money…. and yet it’s only those prepared to set goals that stretch that ultimately achieve anything in life. Some might say that the biggest risk in life is doing nothing, because that’s guaranteed to lead to failure.
Don’t believe the myth that Lotto is an option!
If you have a taxable family income over $110k per year and $160K+ equity in your home, the banks tend to look favourably on you.
Talk to people who know how it works. There are a number of moving parts and potential to cause frustration for first time investors. Learning by your mistakes is not a smart way to go. Learn from others mistakes. As a starter it’s probably best to avoid exotic, and complex strategies. Bread and butter investing with low risk, moderate reward is a good first rung on the ladder. Keep it simple, start with a conversation that gives you an overview, and ensure that you understand the process, are comfortable with those putting everything in place.
“19 out of 20 people I meet are needlessly paying thousands too much in tax.
I help them redirect wasted tax dollars into property, so they can retire sooner and richer.”