Business Hub

Home Sweet Home

That’s a mighty big asset you’re sitting on. We’re talking about real estate, of course. Owning your own home — the white picket fence, big backyard, car in the garage — mate, it’s the great Australian dream. The reality, though, is that real estate prices are skyrocketing, especially in major cities, with lots of speculation surrounding the housing bubble. It’s a topic that sparks news headlines and continues to be a key talking point amongst pundits and punters alike. Many — if not most — Aussies still owe money on their mortgage and for some this dream can feel more like a nightmare, an ongoing financial liability. However, even if you don’t own your property outright, it’s time to start looking at it as an asset. Think about it like this. Sure, you may owe the balance of your mortgage, but you don’t owe the building itself to the bank (or the person you purchased it from, for that matter). So, that means most of your wealth is “tied up” in your house, which has a value. And how much your house is worth is NOT a liability. Real estate is a big part of your financial net worth. Just because you don’t have plans to sell your home, that doesn’t mean it’s not an investment. It’s simply an investment that you’re not selling right now. Housing prices generally appreciate over time. That’s the near-certainty of investing in “bricks and mortar”. Historically, most who own their property for years have seen its value increase. And therein lays the key: real estate is a long-term game. If you want to make money from it, try never to put yourself in a position where you’re forced to sell. So, how exactly do you ensure your home is an asset that grows your wealth? As your primary place of residence:
  • Paying off your mortgage quickly can save you thousands of dollars on interest over the life of the loan.
  • Renovating smartly can add significant value to your property.
  • Running a business from home makes a percentage of certain expenses — for instance, electricity, phone and internet usage — a tax deduction.
On the flipside, as an investment property the key is maximising your net income through the incentives available under the tax system. When generating assessable income — in the case of real estate it’s rent — certain expenses incurred are tax deductible:
  • Interest charged on money borrowed to purchase the investment property.
  • Advertising for tenants.
  • Insurance premiums.
  • Repairs and maintenance.
  • Strata/body corporate fees
  • Council rates.
When the available deductions exceed the assessable income derived by that property, you’re faced with “negative gearing”. For example: if rent for the year is $10,000 and allowable deductions come to $12,000, you have a tax-deductible loss of $2000. This can be offset against other income, reducing tax and improving your cash flow. Of course, the benefit of negative gearing will vary based on your unique tax situation. So there you have it: you home IS an asset. Property is a relatively simple and proven investment, creating greater cash flow in the long run. That means financial freedom and security with a nice little “nest egg” for the future. Lastly, when considering property investment, Moneysoft recommends that you seek professional advice from a trusted adviser when considering your options.   Disclaimer: The content within is general or publicly available information only. Speak with your accountant or financial adviser for advice on your specific circumstance.