With a combination of both record low interest rates and rising rents, properties are increasingly offering a positive position from day one.
While property has always had its place in the scheme of things for investors, we are continuing to see a change in how that can works and the dynamics of investing in our changing marketplace.
When it comes to making property work for you, there are two real ways that you’ll see a return on investment – either through continued income in the form of rent, or through capital gains where the property is worth more at the time you sell it, than at the time you purchased it. Ideally, you would a return from both sides of the coin, increasing the overall benefit to you.
For many, particularly in high price markets such as Sydney or Melbourne where the price of entry could be a million dollars or more, even with a tenant in place paying market rent you might find that the costs (interest on the loan, rates, insurance, body corporate etc.) may be dramatically more than the income. This can result in the property being negatively geared. Why would you want a “negative” investment? Sounds counter-intuitive right? Well, there can be some benefits to the arrangement long term, such as being able to off-set tax on other income (to bring it back to at least cost-neutral) or alternatively it might be worth the short-term pain for longer term gain i.e. where rents are low but prices steadily increase – again those capital city markets tend to focus on this end of things.
In our market however, with a combination of both record low interest rates (reducing expenses) and rising rents (increasing income), properties are increasingly offering a positive position from day one. This provides an opportunity not just for capital growth (which Cairns is seeing more reliably for the first time in a long time) but to actually have your investment pay its own way in the meantime.
No out-of-pocket expenses and a good crack at increasing the value of your property in a rising market? That might just be worth looking into, provided the property and risk profile suits your situation.
Now, don’t forget that I am a real estate agent, not an accountant (though I at least passed all my accounting subjects at Uni!) and this commentary is as always, general in nature and a good reminder to go talk to your preferred accounting professional about the best investment and tax strategy for your own circumstances.