In Australia, we seem to like our property! A majority of households (70%) own (or are buying) our own homes, and a great many of us have dabbled in property investment. Of those who buy an investment property, the vast majority will only ever buy a single investment property in Australia. It is very uncommon to own more than one investment property.
Why Do We Buy Investment Property in Australia?
Australian property investors, of course, buy investment properties in order to make money. And there are two ways an investor can make money from property investment in Australia:
- Capital Gains: This simply means that the property is eventually worth more than the price you paid for it. This is usually employed as a long-term strategy to make money from property: it usually depends on the fact that historically house prices rise over time. However, some investors can make a fast capital gain on a property through strategies that quickly add value to the property. (You’ll learn more about these elsewhere on this site)
- Positive Cash Flow: Meaning that the income that you get from the property is greater than what you spend to own and operate the property. It may require some work to get the cashflow started, or it may already be in place.
Another reason an Australian might decide to invest in property is to save tax. Our tax laws allow us to use a strategy called ‘Negative Gearing’ to minimise our taxable income. This is a popular strategy for Australian Taxpayers who are earning a good income, and who therefore pay a lot of tax. Essentially, an investor employing this strategy will buy a property that produces insufficient income to pay for all the expenses associated with its ownership and operation. The property makes a loss, and this loss is subtracted from the investor’s income to calculate their taxable income: because the property has made a loss their taxable income (and hence their tax) is reduced.
Property Investment in Australia: You’ve Got To Know What You’re Doing
When you plan to invest in property in Australia, it is very important that you know what your investing goals are, and equally important that you know what strategies of property investing will help you to achieve these goals. Whether you wish to make money over the short or long term with your property investment (or investments), or simply want to save tax for now, but have a more valuable property later, you must analyse your investment property carefully. Time spent doing this critical step is time well spent.