Why invest in property?
Investing in property, shares, or cryptocurrency are all viable options when it comes to building wealth. While some investors focus on a single type of investment, others prefer to diversify their portfolio with different forms of investments.
Property investment is a popular choice among Australians, and for good reason.
Research conducted by CoreLogic has shown that property has seen an annual growth rate of 6.8% for houses and 5.9% for apartments over the past 25 years, up to 2018.
This growth has led to a significant increase in median house and unit values by 412% and 316%, respectively, since 1993, providing a substantial boost to the wealth of Australian homeowners.
Investing in property is generally considered to be a relatively stable and lower-risk investment, with potential benefits such as capital growth over time (though not guaranteed), rental income, tax benefits, and the opportunity to increase the value of your investment through renovations and works on the property.
Additionally, investing in tangible assets such as property is often viewed as more reliable and desirable than other forms of investment.
In conclusion, investing in property can be a smart decision due to its historically stable and reliable nature and potential for capital growth, rental income, and tax benefits.
However, it’s crucial to research the market thoroughly and seek professional advice to ensure you make informed investment decisions that align with your financial goals.
Different types of property investment in Victoria:
- Positive cashflow property: rental income is higher than the costs of running the house, providing a decent rental yield.
- Negatively geared property: rental income is lower than the costs of running the house, but tax cuts can make it profitable in the long term.
Financing a Victorian property investment:
- Investment home loans usually cost more than regular fixed or variable mortgages, and Low Rate Home Loan can provide advice and mortgage options.
- Loan value ratio is liable to cap at 80% and could even fall to 70%, increasing the risk of having to pay lenders mortgage insurance.
Investment property taxes:
- State Revenue Office levies transfer duty, which can vary based on the value of the home.
- Land tax is calculated annually on the site value, and legal fees, mortgage costs, valuations, and inspections can also impact the bottom line.
- Certain tax deductions like property management fees, repair costs, legal issues, and mortgage fees can reduce the costs of running a Victorian investment property.
Using equity to buy an investment property
By using your home’s equity, you can potentially buy an investment property.
How much could you borrow for an investment property?
Let’s assume that your home has a value of $400,000 and you have a mortgage of $220,000. To calculate your available equity, subtract your mortgage amount from the property’s value at 80%, which is $320,000. This leaves you with $100,000 of usable equity.
If you want to estimate the maximum amount you could borrow for an investment property, you can use the “rule of four.”
Simply multiply your usable equity by four, which in this case would be $100,000 x 4 = $400,000. Therefore, $400,000 is the highest purchase price you could consider for an investment property.
If you’re unsure about how to estimate your property’s equity, contact Low Rate Home Loan our mortgage broker in Pakenham will help you get home loan suitable for your needs.
Finding the right Victorian investment property:
- Choose between a detached home, an apartment, or one of a set of townhouses, or consider commercial real estate.
- Use resources like CoreLogic RP Data, domain.com.au, realestate.com.au, and SQM Research to analyze market trends and vacancy rates.
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