Property can be a terrific investment providing good long-term returns and steady cash flow in the form of rents. Property is just one of the investment options available.
The key is to think about what is important to you and your family and what you want to achieve financially. Only then can you decide whether an investment property is right for you.
Before deciding to buy a property, careful consideration should be given to your personal, financial and lifestyle goals and objectives. Here is a few things that you should take into account:
1. Have a Plan
A plan should include what is important to you and your family and what you want to achieve financially. Once you have determined your personal goals and objectives and worked out the income you need (while working and in retirement) to fulfil a lifestyle that you want, only then can you work out whether an investment property is right for you.
2. Negative gearing
Many middle and higher income earners buy property for the negative gearing tax benefits. In many circumstances, by the time the property is held for around 5 to 8 years (increasing rents, with decreasing interest and depreciation expenses), the property becomes positively geared and is not tax advantageous. In fact- it will cost you.
3. Whose name should the property be purchased in?
You need to consider the most tax effective choice, who provides the asset protection you require and who will meet your estate planning needs and objectives.
4. Residential or Commercial property
It is worth looking at the different features of residential and commercial property, and making an informed decision.
5. Can you afford the loan repayments?
It’s worth thinking about how you would manage an unexpected job loss or changes to family circumstances. It is usually not possible to sell a property quickly or sell 10% of the property to free up some cash.
6. Loan structure
Should you choose fixed or variable interest rates? How should an investment loan interact with your home loan? Is it worth purchasing the property in your superannuation funds?
7. Cash flow and tax issues
Accumulation of a property portfolio can be a great way to increase wealth over time. However, you must consider the cash flow impact and tax implications of property ownership to determine whether it is a suitable investment now and in retirement.
8. Retirement
What will you do with the property when you retire? Will you need to sell the property in retirement and what happens then.
9. Estate Planning
It is important to think about where you want your assets to go when you die.
What should you do now?
At TAG, we have the expertise and knowledge to assist you in ensuring you go into any property decision with your eyes wide open.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.