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Purchasing An Investment

The Highs and Lows of Investing in Property

The Highs and Lows of Investing in Property

For a long time, investing in property has been portrayed as a great way to build wealth. Whether it’s through huge capital gains from flipping houses or earning passive income by renting them out, in reality, there is much more to it than this.

Rental Income and Gearing 

While it’s true that you can earn a good amount of money from having tenants occupy your house, the rent often does not cover the mortgage repayments. When your investment return is less than the costs, the investment is negatively geared. Though you’ll need to have another source of income to be capable of making the mortgage repayments, this is not necessarily a bad thing, in fact being negatively geared can have some great benefits. Generally, a tax deduction can be claimed for any investment loss incurred due to negative gearing and can be a terrific strategy to reduce taxable income. 

Positive gearing is when the rental income is higher than the costs of the investment. You will be making money on your investment but this income is taxable. Investment properties can be used for tax-deductible purposes or to generate more income, depending on how they’re geared.

A risk that needs to be considered is the chance that the property could be left empty for some time if a suitable renter isn’t able to be found. While the investment loss is tax-deductible, you need to be prepared and equipped to be able to cover the cost out of your own pocket. 

Capital growth

Although there are never any guarantees regarding investment returns, historically the property market steadily increases over the long term. This steady market incline means that most properties should experience capital growth which can offset the investment loss incurred in the early years from being negatively geared. 

It is possible to maximise your capital growth by researching market trends. Properties in desirable locations with easy access to things such as quality schools, public transport, pools, beaches, nature reserves and any other popular facilities, tend to rise in value significantly. Household features such as off-street parking, multiple bathrooms and large bedrooms can see your property value rise well over time too. Renovations are also a great way to fast track your capital growth.

Volatility

Property is an attractive investment as it is known for being much less volatile than the share market and is also quite a liquid asset. With the property market steadily rising, houses can be sold quite easily if you require quick cash but unlike shares, you can’t just sell off a portion of the investment.     

While the property market is historically very stable, it still experiences peaks and troughs. An interest rate rise is also not typically passed onto renters and as such, investment income will be lower. Of course, the reverse is also true; interest rate drops mean the investment income will be higher.  

Property can be a very profitable part of your overall financial portfolio if managed well and tailored to suit your needs. Be sure to speak to a professional about diversifying your portfolio so you’re not overly invested in property for the purposes of risk management.

Saving for Your First Home

Saving for Your First Home

Buying a home is one of life’s huge milestones, but it’s no easy feat to achieve. Houses are expensive, and while the mortgage covers the bulk of the price, you still need to save a rather large deposit to get your foot in the door.

How much do I need to save?

You need to figure out what price range you can afford. You can do that by using this mortgage calculator.  Firstly, you work out how much you can safely afford to pay towards your mortgage each month, then, you plug the figure into the calculator and it tells you how much you are able to borrow. For example, if you can afford to pay monthly repayments of $2,000 then you can afford to borrow roughly $380,000 (based on a 25-year mortgage at 4%).

The minimum deposit required is generally 5% of the value of the home. In the example above, a 5% deposit is $19,000. If you want to avoid lenders mortgage insurance, a 20% deposit is required, which amounts to $76,000 in the given example. 

That’s a lot of money to save! 

How do I save enough for a deposit?

Saving takes time, but we’ve got some tips that will get you there sooner.

Make a budget

We manage what we monitor. Monitor your spending to work out your essentials. To calculate your potential saving power, subtract your essential items (such as utilities, groceries and car expenses) from your weekly wage. This excess income is what you could be saving. Spending just $20 a day on miscellaneous items amounts to $7,300 a year! Cutting out your daily takeaway coffee or staying home to eat-in more often could see you well on the way to purchasing your first home. But remember not to leave yourself short, saving for a home doesn’t need to mean you go without all of the things you love to splurge on—everything in moderation.

Reduce your debt

Cutting down on debt is a great way to save on interest costs. This money could instead be used for saving for your deposit. If you have multiple credit cards or loans that you’re unable to live without, it could save you money to consolidate them into one loan. Making your credit card repayments promptly might save on interest costs if you pay it off during the interest-free period.

Find a high-interest savings account or term deposit

While trying to save, high interest rates are your best friend. Banks often offer savings accounts attracting high interest or bonus interest when you don’t make any withdrawals. These are great accounts for saving due to the high interest rate and the incentive to leave your hard-earned cash alone. 

Term deposits are a good option for when you’ve got a lump sum to lock away for a specified period at a high rate. 

Saving a deposit doesn’t happen overnight, but with set goals, hard work and dedication, you’ll be holding the key to your home before you know it. 

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