A Key to Wealth:
Why Investing in Property is Surprisingly Affordable
It’s a question we get asked a lot: “What’s an investment property likely to cost me?” Usually we sense that the client is expecting the answer to be, “Too much.”
Often they are surprised by the answer we give them.
We all know that property is a common path to wealth. You only have to look through the BRW Rich List each year to see how many fortunes started with property investments as their foundation.
Why is that?
There are three main reasons why property investment is an affordable option for many…
- Ease. It’s not like your own mortgage. That’s hard work to pay off because no one is helping you! With property investment, not only does the government help you pay for your mortgage with the tax deductible loan interest and tax deductible costs of maintaining the property, your tenants’ rent also helps you make your loan payments.
- Leverage. This accelerates your wealth building. Banks are happy to let you keep all the capital gains (that is accumulated wealth!) on an asset where you only had to contribute a small percentage of the value of the loan to get started. No other investment class is as accessible. Sure, you can borrow to invest in shares using margin loans, but you can’t achieve the same Loan to Value Ratios (LVR) that property provides. For example if you borrow $80,000 to invest in a $100,000 apartment, then your LVR is 80%. You can’t do that-and wouldn’t want to do that-with shares.
- Equity. Often people use the existing equity in their home or other investment properties to provide the security for the loan. This means that with little or sometimes even no cash outlay mum and dad investors can get an investment property building their wealth for them for as little as just $20 to $50 per week.
Many people would spend more than that each week on coffees, lunches and fast food.
Property is also a relatively predictable investment. You can run the numbers based on your income, tax bracket, property value, property type (which affects tax deductibility), interest rates, loan costs, depreciation, insurances and maintenance expenses, likely rents, possible vacancy rates, and so on, and you can see in black and white what the future is likely to hold before you invest one cent.
In fact, we’ve just got our hands on some brilliant software that makes running the numbers on a prospective property investment incredibly fast and easy. It allows us to quickly show the bottom line cost of a proposed property investment.
The software produces a personalised property cash flow report for you that shows your likely tax savings and out of pocket expenses, as well as the investment return you are likely to see over the long term.
It’s a great tool to help people assess whether to invest or not, and to see whether they can afford an investment property.
Once the numbers stack up, then the focus turns to finding a property that makes investment sense and is not an emotional purchase
Property is an inherently emotional thing, so it’s important you stay logical and data-driven with your decision-making.
That’s why we recommend Pacific Eastcoast because they can objectively show an investor a number of property options, in various locations, that match the objective criteria that ‘the numbers’ say they should use as their guide.
With interest rates at all-time lows and banks offering very competitive loan products, it’s a good time to be looking at property. Pacific Eastcoast have a number of solid investment options in growth locations. We’ve gone through their list and can see that many properties will have a projected out of pocket cost of around $20 to $50 per week for many of our typical clients, with tax savings of $8,000 to $10,000 per year.
Historically property shows excellent long term growth rates for both rent and capital growth, and we’ve never seen a better time to get active in the property market.
If you would like to us to prepare a personalised Investment Property Cash Flow Report for you, drop us a line and we can sit down with you show you just how easily you can start investing in your future with the most common key to wealth, property.