Time and time again, we see people approaching the purchase of an investment property with the wrong perspective.
The assumption is often made that if a property is negatively geared, you are paying less tax. While correct, you are effectively paying for a tax deduction.
Don’t get me wrong, property can be a great investment vehicle but make sure you have all the facts before taking the plunge into an investment like this.
There are considerable costs when purchasing and servicing a property. True performance in any investment is ultimately measured in “money in VS money out”. Assuming you can service the property from a cash flow perspective, the value in investing in property comes from the long term capital growth. This “buy and hold” approach allows you to ride out the up’s and down’s of the market.
Take for example this theoretical scenario of purchasing a $300,000 property:
Cost Base = $308,500.00
The below chart shows break even point at year 6 based on the above figures.
Before looking at property investment, here are some questions you should be asking yourself:
Selecting the Right Property:
The unknown factor in all of this is capital growth. While things may be good at the moment, there is always a potential for lacklustre growth. Go in with your eyes open and all the facts to understand how much growth needs to come from your property to ensure it is a good long term investment.
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