We have offices in Sydney, Melbourne, Perth, Brisbane, Adelaide, Canberra, Hobart and Newcastle
Wealth accumulation for most Australians occurs at the intersection of home ownership and / or property investment, superannuation, investments and prudent debt management. While we do not provide specific property recommendations, we support decision making and provide advice on the ramifications of different decisions and investments.
As part of your financial plan, we assist you to understand the impact of property investment on your financial position. Buying and owning a home as a principal place of residence has certain tax and long term financial planning implications, and has generally been a positive way to accumulate wealth in Australia. Many of our clients are rentvesting, where they rent the place where they live because they want to be located in a certain area and then have property investment(s), where they can afford to buy. We support the financial decision making under various scenarios and take a holistic approach with the other aspects of your financial position such as superannuation and insurance. We can also assist you with strategies to pay down the mortgage on your principal place of residence, where applicable, and the trade-offs with other types of investments and saving.
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Many of our clients either have property investments or want to acquire property investments. These can be positively or negatively geared, and has generally been a positive way to accumulate wealth in Australia. We do not recommend individual property investments but we can provide financial advice to assist with wise decision-making, and project the impacts on your cashflow based on assumptions. Importantly, we can show you how your decisions might affect your lifestyle and long term wealth accumulation. For example, our clients, who are selecting a property themselves, will sometimes request us to assess the impact on their cashflow, lifestyle and wealth accumulation, and update their insurance to protect themselves from a life event.
Book AppointmentIn the long term, investing in property has generally been a good way to accumulate wealth, but not always and in the future circumstances may change. There is considerable hype about the increase in property values particularly in the capital cities, but it is always important to understand that some property investments and markets perform poorly and you need to be mindful of who is selling you the property. As an example, some apartment investments have performed poorly because of building defects or being in areas with high supply, and housing in some regional markets (e.g. mining towns) have sold at high prices during booms and then pricing has decreased. The value of Australian real estate is historically high compared to median incomes so the future is unknown.
There is a broad scope of issues to cover with this question, but in summary the mortgage interest (and repayments) is not tax deductible on your principle place of residence but the capital gain is typically tax free. With investments in residential real estate, the mortgage interest is tax deductible and the rent is taxable and there may be depreciation benefits, but any capital gain on sale is typically subject to tax.
This requires careful consideration and specific advice. Home ownership (and whether you are single or a couple) affect the level at which your entitlement to the aged pension starts to decrease, and the value of property investments impact the asset test (total assets at value) and the level of your assets impact the amount of aged pension you might be entitled. Most Australians will rely on the Centrelink aged pension at least partly and for at least part of their retirement (depending on lifespan) and it is important to have a pre-retirement plan in place so that you understand how you are going to support yourself in retirement. Life expectancies in Australia have been increasing gradually, and it is important to remember that a life expectancy is a median with many people living beyond the life expectancy. Accordingly, planning is important.
While property investment in Australia can be a positive way to accumulate wealth it adds complexity to your financial plan. It is important to consider more carefully life risks when you have a property investment(s) particularly if you are negatively gearing, to make sure that you can cover the mortgage if something happens to you, and although rental markets are currently tight, there have been periods where vacancies affect cashflow and that can occur in the future. Also, it is important to have at least some diversification in your portfolio, so property investment needs to be considered in conjunction with superannuation.