Buying property can be a great way to invest in your long-term future. Before you make the first move towards investing in property, you need to get educated. That’s why we’re here! This simple guide to growing wealth with property is designed to show you five ways bricks and mortar can translate to beach holidays and financial freedom.
Leveraging allows you to use the cash you have available to purchase a more expensive property. Let’s say you have $60,000 in cash. Using debt you can purchase a property for $300,000 using your cash as a 20% deposit. Now you control an asset worth $300,000 for just a $60,000 outlay. If the property appreciates at a rate of 5% per year, you’ve gained $15,000 in the first year. Compare that with gaining 5% on your initial $60,000 deposit (that would be $3,000) and you can see how powerful leverage is when it comes to growing wealth.
Income from rent is your bread and butter in the property investment game. If you’re lucky, the rent you receive will cover all your outgoings. Rents should rise over time whilst debt reduces, creating positive cashflow to fund your lifestyle.
Some people like to think of property debt as forced savings. Whilst that is an oversimplification, it’s true that paying down any debt you owe on the property as quickly as possible will boost your net worth, therefore increasing your wealth.
If you are a wage or salary earner or self-employed, you can receive generous tax deductions for expenses relating to your investment property. Paying less tax increases your monthly cash flow, just another way property investment can provide financial freedom. For more information on rental properties and taxation, the Australian Tax Office have some prerecorded webinars available on their site.
Capital growth is simply the increase in the value of your property over time. Capital growth is how you continue to add to your property portfolio. As your property grows in value and you reduce debt, you can borrow against your increased equity to buy more investment property. Property is a long-term investment, and should never be viewed as a way of getting rich quickly. If you buy well, however, your very first property could be worth much more than you paid for it by the time you choose to retire.
Investing in residential property is a great way to build wealth. You can use debt to leverage your cash into a more expensive property. Rental income helps pay the associated expenses of ownership. As you reduce the debt you increase your equity. It’s tax-advantageous meaning you can claim a large portion of expenses against your own income. Finally, capital growth is the cherry on top which helps to increase the value of your property over time.
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