Wealth Creation

Property -

has been considered a popular path to wealth for Australians for many years. Buying their own home is often the first significant investment most people make. Purchasing another property may well be the second – even before shares and other assets. However your first investment in property need not be your home. Buying a rental property can be a good way to gain some capital growth that can be used later to help buy your own home.

Sensible investments in property have many attractions. Property can be less volatile than shares and it tends to be regarded as a safe haven when other assets are declining in value. Property has the potential to generate capital growth (an increase in the value of your asset) as well as rental income. There are also tax advantages associated with negative gearing.

Why invest in property? Because you want to avoid at all costs the dependency on the government pension at retirement, or the false reliance that compulsory superannuation will be enough to support you in your retirement.

Buying real estate, whether you are buying the family home or an investment, is one of life’s most important financial decisions. However, when buying an investment property, it is wise to remember that you are making a business decision. You are not buying from the heart, but from the head. You are buying the property because you expect it to appreciate in value and give you a financial return.

When investing, it is important to assess your current financial position. What are your cash reserves and what equity do you have in your present home? Look at your long term objectives. For example, will the property be part of your retirement financial plan? Potential changes to your current situation should also be factored in, such as the birth of a child, the loss of one income or supporting parents in their later years. It is wise to seek advice from an investment adviser or qualified financial planner to help determine your financial goals and strategies.

Property Investment a Super Idea –

Self-managed super funds now account for 31 per cent of Australia’s retirement savings, and represent the largest slice and fastest growing sector of the super industry. The freedom to invest the way you please is the big drawcard, and residential property investments are the obvious choice for many.

Aside from the traditional safety net of bricks and mortar, the appeal lies in the attractive tax concessions. For example, somebody in their 50s who buys an investment property outside super, then sells it 15 years later to fund their retirement, potentially faces thousands of dollars in Capital Gains Tax (CGT). But if the same property is held within a super fund, the tax can be reduced to zero if an investor decides to sell the property from the time they have started drawing down a pension. If the investor chooses to hold on to the property in super, any rental income is only taxed at 15 per cent or not taxed at all during the pension phase.

Self-managed funds have only been allowed to borrow to invest since the super rules were changed in 2007, and financial institutions will typically let a self-managed fund borrow about 65-70 per cent of the property value.