24 Oct 12
Astute investors are always on the lookout for ways to make their money work for them. While one tactic is to put cash into bank accounts to earn interest, with interest rates at historical lows, no-one is getting rich overnight with this method. Cash management trusts earn higher interest rates, and people with a diverse investment portfolio will leave some of their money there, but again, the returns aren't high. The share market is another vehicle used to generate investment income, but to trade successfully requires specialised knowledge, and most investors leave this method for the experts.
The one vehicle that attracts almost all investors is the property market and specifically a rental home. There are several reasons for this. The first and most obvious one is that everyone needs to live somewhere. In that process of renting or buying accommodation, all of us have gained some real estate knowledge. This means that anyone thinking about buying an investment property already has some skills and knowledge without even realising it.
Taxation Advantages Still Available
The taxation system in Australia encourages property investment through the long-standing negative gearing system. Simply explained, this means that a person buying a rental property on a small deposit will have a large mortgage that the rental income will not cover. When an investor lodges a tax return, the cost of holding the property will exceed the rental income. This result will reduce the overall taxable income and the amount of tax payable, often resulting in a tax refund.
An Inexpensive Reno Can Quickly Increase Equity Value
Although the days of housing prices doubling over just a few years are gone and not likely to return in the foreseeable future, there will still be opportunities to hold on to the property for some years and allow the equity in it to increase. Canny investors use this equity to secure a mortgage to buy other investment properties in the real estate market. They build their investment portfolios, one property at a time.
Investment properties are an ideal vehicle for an investor to buy 'the worst house in the best street'. Some cosmetic restoration might be needed such as painting, new floor and window coverings, a new kitchen and bathroom. Then rent it out for a couple of years, and when market conditions are right, sell it for a tidy profit. A portfolio of half a dozen rental properties should generate reasonable cash flow which can be used to expand the investment portfolio. This can also create a comfortable buffer against economic adversity.
The final benefit is that, should a large injection of cash be needed for any reason, investment properties at the lower end of the market can usually be sold quickly if the price is reasonable. This is an investment strategy that thousands of people have used to become financially self-sufficient. Click here to find more information about property investment. There is no reason why it won't work for you.