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Apr 03, 2019

Purchasing Your Investment Property: Capital Gains and Rental Income

So, you are considering purchasing a newly-built home as an investment property? How exciting! Whilst you may be itching to change your title to ‘landlord’ as soon as possible – there are several important aspects of real estate investment you should be across relating to the benefits and responsibilities of your future rental income. In today’s blog, we answer frequently asked questions we get asked by would-be landlords.

What is more important when investing in Real Estate with the intent of becoming a landlord: capital gains, or rental income?

Both! A ideal property investment will typically deliver a strong rental return in the short term and a healthy capital gain in the long term. Rental income is important to pay the everyday running costs of owning a property and capital gains are necessary to build asset value in the future.

What positions Real Estate investors in the best tax position: positive, neutral or negatively-geared cashflow?

Negative gearing is popular when it comes to property investments, as it allows taxpayers to reduce the tax they pay on their overall income in the given tax year. Any improvements costs incurred may reduce the profit of the investment, bring it down to neutral or into the negative in that financial year. Smart investors always consider the longer term and may decide to spend money in the short term to increase their long term financial position.  ie improvements that improve rental yield in the short-term or improve the capital value in the long term. These improvements should be carefully considered and form part of the longer term property investment strategy. We encourage you to remain engaged with this topic over the next few months, as the Australian Labor Party intend to limit negative gearing should they be elected in 2019.

How long is reasonable to wait until you can achieve a neutral or positively geared tax position relating to your property investment?

Typically, five years.

What are two common mistakes that fledgling property investors make?

‘Newbie’ property investors often make decisions about their property investment strategy without seeking expert advice and may subsequently purchase with a short-term mindset. When it comes to property investment, mistakes can be costly, so even though there may be some fees relating to accountants, conveyancers, brokers and advocates in the short term, the long-term benefit of expert advice is well worth the investment. Also, these costs can be claimed as tax deduction.

What are the three core benefits of becoming a real estate investor?

Firstly, Real Estate is an asset that you can use to build wealth over time. If well-maintained and well-considered, it has great potential to work for you in return. Secondly, Real Estate is a tangible investment, it’s an asset that you can touch and feel, and this is always of great reassurance to investors. Lastly, smart Real Estate investments provide on-going cashflow so you can earn money even when you are sleeping!

The Aston Homes team hope that you’re feeling informed and confident about building your real estate investment portfolio. As always, we recommend that you consult your accountant or financial advisor for specific advice. If you have further questions, we are always on hand to assist with information about purchasing your investment build. Contact us here.