Before we talk about what property you want to buy, we need to talk about why you’re buying this investment property. Obviously you want to increase your wealth. That’s central to investing in property. By paying off the property over time you will have more value in your asset portfolio. But let’s take this a step further and make that property work harder.
Investments can work a lot harder than just accruing value. Before we discuss your property let’s discuss your tax.
If you’re investing, chances are you’re moved up a few rungs in the schemes of taxation. You may be paying anything up to up to 40%+ of your income into taxation. That’s tens of thousands of dollars per year at the top end and still a good bite out of your pocket even at lower levels. Investments can reduce that by allowing you to claim against the investment and reduce your tax.
Most people are looking to negative gearing to help them reduce their tax burden. Whether you negative or positively gear your property, there are significant tax savings if you do it properly. Let’s talk about that.
Buying a new property allows you to claim the contents of that house in the form of depreciation. That depreciation is claimed over the first nine years of the investment’s lifetime. In some cases the savings in taxation will cover the cost of the loan you’ve made for this investment. You’ll get more money in your pocket every month because you’re paying less tax.
Beside the taxation advantages, older homes can come with pitfalls such as unexpected expenditures. The components of that home, the dishwasher, the hot water system, the guttering, the fences…all of it is aged and some of it will cost you money at some stage. Unexpected failures are, to some degree, expected with older homes. But they’re still difficult to budget. Buying new is a better option because everything that makes up that home is new and budgeting is a much more consistent process.
Property increases in value. Land is worth something even without the house upon it. As the unimproved value of your land increases, so too does the value of your investment. Units aren’t quite as responsive to market forces as houses are. They’re not as finite a product as houses. Some areas where apartments exist, can have massive increases in apartment numbers within the first decade of ownership. Your house is a unique and finite asset. Whereas each unit has dozens or more similar within the complex.
Any market expert will tell you, there is value in scarcity. It’s called the scarcity principle. Often in marketing this scarcity is artificial. A salesman will always try and make you think that if you walk away now, you’ll never see this value again. In real estate, the scarcity can be real. Use this to your advantage.
Look for the areas where the land release it finite. It is running out. This excludes some of the big growth corridors. If there’s enough land there to release blocks for the next two decades then there is no scarcity. You want to find an area where the land release is almost finished. In principle, you want to buy the last house in the last street of that area. After that house is bought, anyone else who wants into that area has to pick from what already exists. That’s scarcity in action and market forces will necessarily push up the value of those properties in that area.
Buy a house. Buy a new house. Buy the last house.
Foresight Concepts Pty Ltd – Credit Representative Number (CRN) 419214 & Australian Credit Licence number (ACL) 389328