How to Create Wealth through Property Investment
Property investment is a common strategy for building wealth for three reasons; it’s less risky than other investing mediums, it can provide good cash flow, and the return on investment is strong. Furthermore, it’s a tactile asset and can provide significant tax breaks for smart investors.
Source: Real Crowd, 2013, https://www.realcrowd.com/blog/2013/02/reasons-to-invest/
The key to building wealth through property investment is understanding your financial objectives from the outset of your investing journey, and engaging a team of informed and practical professionals who can lead you in the right direction to achieving your goals. It is possible to create wealth through property investment by adhering to the following key points.
The aim of property investment is to increase your capital through the value of your property or portfolio, also known as ‘appreciation’ or capital growth. Although capital growth isn’t always guaranteed, researching the location of your investment and paying particular attention to infrastructure spending, supply and demand, economic and employment indicators, and demographics of the area, can help minimise the risk of purchasing a property that won’t increase in value over time.
If you’re already a property owner, there is a chance you have untapped equity which you can repurpose towards growing your property portfolio. Equity is the value of your property, minus your loan or mortgage. If your property is worth $500,000 and you owe $300,000, your untapped equity is $200,000. This equity could be used in lieu of a deposit to secure your next purchase.
Financial commentator, Mark Bouris says “the key way to secure wealth through the family home is by taking equity out of your property and investing it into something else. Property in Australia sits quite intelligently in an asset portfolio,” he told news.com.au. Mr Bouris also identified that building wealth through property is both a smart move and a long-term financial strategy.
Get the cash flowing
Any rent that you receive from tenants contributes to your cash flow. Usually these funds are used to pay your mortgage, taxes, insurance, maintenance, repairs, and so on. The more of these expenses you can pay from your rental income, the less you need to reach into your own income or savings. A property investor will ideally have a neutralised investment property which means the asset can pay itself off with the income it generates.
Arguably the biggest benefit of investment property is the tax breaks available to you as an investor. Tax benefits will help reduce your overall income and therefore the amount you will be taxed throughout the financial year. Loan interest, insurance, real estate fees, travel, repairs and maintenance are all examples of taxable items you may claim in your tax return as an investor.
If you’re looking to build your wealth, investing in property is a great option. We recommend seeking the right advice before committing to a purchase to ensure you have the right strategy in place for you.