If you’re looking to climb the ladder to wealth and financial freedom there are plenty of ways you can bring this dream to life. This article explains how real estate can be a valuable investment to help you get ahead of the game financially. Whether you’re thinking of buying as an owner occupier or purchasing an investment property, there are ways you can make your real estate benefit you financially either way!
Here’s the catch: When buying a property there are no guarantees that it’s going to make you rich. Plenty of people experience financial stress and never reach the pinnacle of wealth they’ve hoped for.
Now for the million dollar question: How does one use property to become a millionaire?
The tricky part is knowing what to do with your money to suit your unique situation and having a clear strategy.
Perhaps the most attractive feature of real estate investment for wealth creation is the capacity for long term capital growth. Property has the ability to increase in value over time – this is called capital growth. Historically, on a whole property in Australia has seen a consistent increase in value. There have definitely been times where these values saw a decline, but they didn’t last for a very long period of time and the market recovered. Capital growth in property is dependent on market supply and demand. For this reason, one may predict property prices and capital growth (in the right areas) will continue to grow because there’s a consistent demand for housing due to increasing population numbers.
Here is a list of some ways you can use your accessible capital growth:
Refinancing – If you’re an owner occupier you could use it as a deposit for your first investment property. Alternatively, if you’re already a property investor you could use it as a deposit for your next property venture. You can also use it for other types of investments such as shares or stock.
Selling: If you already own a property that has gained good capital growth over time, you might consider selling while the market is hot, especially if you are predicting a future drop in property price.
We all know that (in most cases) renting is dead money that eats away at your after-tax income! If that money was being contributed towards your own home, it may be possible to make some of the money back through refinancing and capital growth profit.
Ever heard of ‘Positive Gearing’? Well, positive gearing is when the income from your investment property is greater than the expenses, it’s also another way that you can increase your cash flow. You may be renting a property in an area that typically has a healthy rental return which exceeds your monthly mortgage repayments. For example, say your tenants are paying you $1000 in rent per month and your monthly repayments are $500, this means you are gaining $500 per month. To build more wealth using this additional income, you could use it to invest in something else, live off the income (if it’s substantial enough) or go on a well deserved holiday- it’s up to you! You should consider that these may have tax implications so it’s always worth discussing with a financial specialist before making any decisions. If you don’t know one, we are happy to refer you for a consultation at no cost.
We’ve talked about positive gearing, so you might have already guessed that negative gearing is the opposite. It is when then expenses you are owing on the property outweigh the income it is generating. Sound like a bad situation to be in? Not necessarily – there can be some perks associated with negative gearing. Some people use negative gearing as a strategy to reduce their taxable income. You may be able to claim any net losses against your taxable income, therefore reducing the amount of tax you have to pay on the income you earn in your primary job or other ways. Again, we may sound like a broken record but we wanted to reiterate the importance of discussing this with your finance specialist prior to taking any action as each situation is unique.
KEY TAKEAWAY: There are many ways you can use real estate as a means for wealth, but you might be feeling a little confused and overwhelmed with all of your options (it’s ok, it’s normal). Lucky for you that’s where we come along. You can sit back and relax while we wave our magic wand to find you the perfect loan (not literally…but we know what we’re doing and we’re very good at it). We’re here to discuss your needs and listen to your situation and help you secure a suitable loan.
Free, impartial advice and someone to help guide through the home loan process.
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Disclaimer: The information provided in this article is not legal or financial advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness of the recommendations, having regard to your own objectives, financial situation and needs. We encourage you to consult a finance professional before acting on any suggestions provided in this article or on this website.