Buying a $1 million investment property can seem daunting but there’s a perfectly legal way to pay just $8000 a year for it.
In Australia, the property isn’t only the best performing investment class over the last couple of decades – it’s also something that can deliver you serious tax deductions and help you cut your tax bill while you build wealth.
Owning an investment property isn’t nearly as expensive as most people think, especially after you factor in the available tax benefits, with statistics showing the average cost of a $1 million investment property is $8114 per year with an annual growth of $63,000, meaning that the net benefit to you (benefit fewer costs) works out to be $54,886 each and every single year.
While owning an investment property does generally come with a cost, on the flip side, you benefit from owning an asset that grows in value over time. We wanted to unpack what drives these numbers so you can see how this might work for you.
Initial Costs of Buying a Property
When purchasing a property in Australia, there are several initial costs involved. These may include stamp duty, which varies depending on the state and can be higher in certain regions. Additionally, expenses such as building and pest inspections, as well as legal fees for managing the registration process, should be considered. However, with an incredible opportunity like acquiring a $1 million property for just $8000 a year, the investment potential becomes even more enticing.
Ongoing Costs of Buying a Property
In addition to the mentioned factors, buying a property may also entail ongoing costs such as apartments and townhouses having associated expenses, houses requiring payment of council rates, water rates, insurance costs, property management fees, repairs, and maintenance. Making principal repayments gradually reduces your debt over time, with mortgage interest costs involved.
Financial Benefits of an Investment Property
When you own an investment property the benefits are two-fold. In addition to the rent paid by your tenants, you are also likely to benefit from the growth in value of your property over time. Upon the recent calculation, Westpac data shows the averaged 6.3% growth return annually on Australian property since 1870. Given the continuous rise of property prices, we presume that the numbers would likely be significantly higher considering that this data is from 2019.
Property Costs are Tax Deductible
If the expenses on your investment property are more than the income you receive, you can claim this amount as a tax deduction at your marginal tax rate to reduce the after-tax cost of running your property. Based on Australian marginal tax rates, if your annual taxable income is above $45,000, your marginal tax rate + Medicare levy is 34.5%. This only means you’ll receive a tax refund of $0.345 for every dollar your investment property costs you. Meanwhile, if your income and tax rate are higher, you’ll receive even more back at tax time. This then will give you back at least a third of whatever you pay.
Buying an investment property is something that can seriously accelerate how quickly you get ahead. But it does come with risks that are important to manage. It can fast-track your money success and go a long way to set up the future you want.
Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.
