The great Australian dream is to own your home. This makes a lot of sense; it’s a very basic human need to have a backyard with flowers and place to lay your head at night . However, in 2014 more and more people are opting to buy an investment property first! Why?
There are numerous reasons but here are the main ones…
1. When you own your home you are responsible for 100% of the repayments plus maintenance and expenses such as rates.
If you have a loan of say $400,000 your monthly repayment would be approximately $2,552. That’s all yours to pay! Woohoo! Unless you are on the big dollars that is a big whack from your pay packet!
2. If you have an investment property you have a tenant that is contributing towards this mortgage.
If your tenant is paying $400 per week, they are contributing $1733 per month. Now you only have $819 to contribute yourself.
3. The tax office kicks in with a reduction in your tax dollars to help you pay the expenses.
This is a little more difficult to give an example for because it depends on your income. The more tax you pay the more you can get back. However, in a conservative example you may get another $400 per month. This means you only have to kick in $433 per month.
4. The bank will lend you more when you buy an investment property.
This is true! Believe it or not! If your income is $60,000 the bank will lend you a certain amount, but if you are buying a property with a tenant paying you $20,000 per year in rent, the bank will see your income as $80,000. They even include the tax deductions.
This is significant for young people who are wanting to get started early but their income means they can’t buy a house to live in. Often the rent can get you over the line! If you are interested in whether you can qualify for a loan please feel free to contact us and I can give you some feedback about your specific situation.
5. Your tax dollars go into your future savings.
Let me explain this so I don’t mislead you. If you currently pay $10,000 per year in tax and the tax office gives you back $5,000 of this for your investment property, in a very real way the tax office is helping you invest, your property investment pro perty will grow in value and you will start to pay the mortgage down, so you are increasing your savings.
This is not necessarily the right strategy for everyone. There are a number of reasons not to do this. You should get specific advice for your situation from professionals.