Australians love real estate. Whether its visiting display homes, reading the property section of the paper or online, talking with friends, or dreaming of your future home…we simply love property. The great Australian dream still exists, however, it’s changing shape. More and more people are coming to understand a new way of thinking – not just buying a home to live in, but using property to get ahead in life. The typical first home owner will now consider buying an investment home instead of a home to live in, rent it out and then either move in (when weekly expenses are less than rent), leverage to eventually buy their own home, or rent in their desired area.
That’s right, invest in property to achieve your future financial goals! Buy in strategic locations. Leverage bank finance. Rental income pays down your mortgage. Then you’re left with an asset(s) that delivers passive income stream to sustain you well into the future.
With every investment there are inherent risks and rewards, particularly when borrowing funds, or off-plan purchases. It’s important to do your homework and consult independent legal and financial advice before making any property purchase or investment.
When it comes to the rewards, there’s certainly plenty! The PIA B&R model (Buy and Rent) has been tried and tested amongst our investors for well over a decade, so we’re sharing the secrets of our clients’ success.
We’ve compiled the top 5 reasons why you’d invest in off-plan property, particularly in the Sydney market.
1. It’s actually easier than you think
You’ve done your suburb research, you know your budget, and you understand the negative gearing benefits…what’s stopping you?
Getting your finances sorted is the key step, so you know your borrowing capacity. Now you just need to find the right property. Once your finance is in order, you’ll need to do your due diligence (arrange bank valuation and undertake your property inspections), so there’s very little risk that you’d find yourself with a property that you’ve overpaid for or doesn’t meet your expectations.
2. You use ‘other people’s’ money to pay off your off-plan investment
This is where the B&R model really pays off. Despite the initial deposit (ie you leverage current home equity or savings), you borrow funds from a financial institution. Interest rates are currently the lowest we’ve seen in over 50 years, meaning lower repayments, so now is definitely the right time to take advantage.
Tenants pay down your mortgage through weekly rent. For positively geared properties, rental income exceeds your borrowings. For negatively geared properties, your rental income will be slightly less than borrowings. All whilst you sit back and watch your investment grow. You can then use the equity in this property, from capital growth, to fund your next investment.
Which leads me to the next great reason for investing in property. The ATO will allow you to claim a range of tax-deductible expenses through your investment property, including depreciation. The newer a property, the greater the depreciation levels. This serves to reduce your tax bill and improve your cash flow. Talk to your financial advisor or tax accountant about how you can reduce your tax bill through a property.
3. Property can offer greater predictability and certainty as an investment
Your investment choices are endless, and you should always discuss your circumstances and future financial goals with a financial advisor.
Bricks and mortar (houses) are generally long term investments and no matter what happens, you’ll still have a disposable asset at the end. Property is more predictable than other investment options, and the market cycles follow a fairly consistent trajectory – particularly in high demand Eastern states such as Sydney where property growth has been steadily growing over the past 50+ years.
Given the current levels of demand for housing and rental accommodation, property with strong cash flow can weather you through uncertain times because it meets the basic need for housing. Rising population and drops in average household size mean that people will always need a place to live, even during difficult times.
4. Property can lead you to greater financial security and wealth
Will you have enough super to retire on? How stable are my super investments? Will your current employer contributions be enough to live out the retirement you’ve planned? Will there be an aged pension when you retire? What can I do to retire comfortably? All questions to ask yourself in considering your future financial goals.
A balanced approach to your retirement and investment is a solid strategy. Property can lead to great wealth – we’re forever reading about property moguls and how simple it is to get started and make millions. Where property is concerned, capital growth can lead to great asset value, and rental income leads to a passive income stream once your investment is paid down.
5. You control the destiny of your portfolio
You control where you buy, how many properties you buy and when to sell. And to a certain degree, how much you can achieve for rental return.
Unlike other investment types, property affords you many options in terms of growing the value, size, and income for your property. Whilst market forces and economic conditions play a role in influencing property values and demand for properties, you are still the captain of your own ship – steering your portfolio in the direction of your future financial goals and life circumstances.
Security and peace of mind
Unlike a conventional ground house, an apartment offers a lot of security. At the very least, you’ll need a key to get in through the security doors, but some newer developments offer concierge and keycards, similar to a hotel. Access to lifts and amenities is also limited to residents only, and many apartment complexes are monitored by CCTV. Whatever your reason for wanting that extra security, apartment living can offer you that peace of mind.