- April 29, 2024
- Posted by: legaleseblogger
- Category: Related News
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Ā ****** just grabbed a
Because they will sell it for a higher price later on.
It’s actually really complicated. I’ll try and keep it simple.
Buy a property for 500k, and the mortgage rates and insurance come to 2.5k per month. The rent is 2k per month. So they lose $500 per month. Claim that on tax and get an extra $150 back on tax each month, so the actual loss is $350.
Ten years from now, the cost is still 2.5k per month, but rent is now 4k, so now you’re making 1.5k a month and paying $500 in income tax.
Now, in 25 years, there is no mortgage, and all that rent is income. You can now also sell your 500k purchase for a few million, which after indexation and CGT is still a massive net win.
Because itās about building equity in the property. Value goes up, mortgage goes down.
Same way people make money buying shares. Sell them for a higher price later on.
If your income is negative 1% but the property goes up in value 4% you made money.
The negative income is also tax deductible, and the value growth has capital gains discount
Tax concessions all the way through.
Property as an investment is extremely front-loaded with expenses, and back loaded with revenue.
Even disregarding the fact that the value of the property will rise:
Rents will continue to go up over time with inflation, so even if they arent covering costs right now, they inevitably will in 3/5/10 years, even if you arent aggressively paying the loan down
Coz
– getting some rent is better financially than none (I.e. if you live in it)
– capital gain over the long term if that’s classified as your Main Residence. This really is the part that people think of as “Investment” in the context I think you are asking. I’d add “well selected” and “long term”, and of course “no guarantee”.
Capital gain over time may be more than the sum total of losses over time.
Rent increases can move a negatively geared property to positive.
There’s also some people that have second properties for other reasons than investing – I’m keeping mine so my kids will have a place to live, so I’m fine with paying off the principal while my tenant pays ongoing costs.
Did that for a house in Sydney. Held from 2014 to now. The value has increased by over a million dollars.
You don’t become a landlord to make money. You do it to aquire assets.
If you like the idea of looking at a piece of paper that shows your asset worth and an empty bank account then property investing is for you.
It’s a tax deduction for high income earners as well. Negative gearing. This is what’s annoying a lot of people in Aus. Multiple properties that are negatively geared. The investor pays the difference on the loan but you’ve got all these deductions to bring down your income tax. You’ve also got depreciation schedules for each property, which is also a tax deduction. Your paid interest on the loan is a tax deduction too. If you’re a high income earner it’s a good way of reducing your overall tax position. Your tax return will be much better. This is how investors keep rolling and purchasing more properties. Especially if you bought prior to the COVID boom. The Gov have cracked down slightly on the deductions. Previously if you owned a property in another state, you could fly down and visit it and claim it as a tax deduction. Basically a tax deductible holiday.
Capital gains is untaxed profit but you can still use that profit to purchase another investment.
For example, say I buy a house for $500K, in 10 years that house grows to $1m. I can now take out my equity up to I think 20% of the value of the house.
So I may have $700K of equity, I’ll take out $500K and use that to buy stocks or another property.
Ok let’s say you rent out a place for 500 but rent yours 500. So you are no better off. However the interest and and repairs and maintenance, insurance and so forth is a tax write off.
I’ve got a mate that did exactly this with his brother. They each bought new houses in an estate and rent it out for market rent to each other.
As it’s market rent ATO is happy.
So all interest and deprecation is now a tax write off.
Whatever my investment property is costing me, I can pretty much half it through negative gearing
Buy low. Sell high.
Another feature of doing this in property is the leverage argument. Borrow 10-12% of the total asset and you get a huge asset for your cash ie $500k home for $50-60k down payment. You are now growing $500k at 6-7% p.a. Instead of the $50k you had.
Negative gearing
Capital gains is more important than rent.
If your purchased a $10 million dollar house in 2010… it could have been sold for $25-30 million today. The rent on that over 14 years = lets say $10,000 per month *12*14 = $1,680,000 vs the 10-20 million you could have made by simply leaving it empty. Now you know why we have a housing crisis š
You also get 50% CGT deduction plus negative gearing (pay less income tax) etc etc…..
Ideally, your rent covers the cost to rent it out as well. Not sure what example your giving but you can have both, but as the above example shows… property is a long term game (10 + years and CG is how you can really create wealth).
Bullshit tax deductions and capital gains with more bullshit tax deductions sprinkled on top. The rent nowhere near covers the costs and compared to other investments gives terrible returns.
The whole system relies on prices going up forever and ever and when they donāt it will collapse but people insist it isnāt a pyramid schemeā¦
Being a landlord is not a profitable venture. It’s a headache. Losing money is part of Australian culture…..look at our gambling problem.. š
If you want to make money. Buy shares which pay dividends. Or start a business.
negative gearing???
They do make an income from what they’ve collected, and after the first year, if they put it aside, some of it will cover the costs. Year on year this increases. Yes you get taxed on what the income is, but you still get deductions.
Buying an investment property should not be for the Negative Gearing. It’s a stupid policy and had contributed to the issues we have now.
In this market I don’t know how it can’t cover your mortgage. We have a small property, mortgage is $1250pm, rent appraisal is $550-600pw.