Very few hard-working Australian families will never understand how poorly our school system prepares us to build wealth. Most Australians will retire with a fraction of the wealth they could have potentially accumulated without saving one extra dollar during their working years.
Many habits past on from one generation to the next, reminds me of the famous ‘fleas in a jar’ analogy. If you haven’t heard it, the story goes something like this…
Our boundaries around the way we think about wealth often go unchallenged. We are conditioned to believe a number of things about property investment that if challenged, you will reveal the ‘shocking truth’ about your family home loan, and the reason why ‘negative gearing’ is typically a negative experience.
Why A Family Home Is The Hardest Property To Pay For.
It’s important to understand that your family home will always be much harder on your pocket than an investment property should ever be.
This is due to the fact that every single dollar you use to service your family home loan, plus all expenses, must be paid from your ‘after-tax’ income. This includes your rates, property insurance, maintenance costs… every single expense!
In comparison all investment property expenses are 100% tax-deductible, allowing you to select investment properties where most, if not all of these expenses, are serviced by the tax portion of your income, along with the rent collected from the tenant.
Why Pay For Your Family Home ‘Twice’?
When you secure a loan to purchase your family home, the terms set by the finance provider are designed to maximise their income. Your home offers suitable security to secure the loan, and they believe you have the capacity to earn enough income to ’slug away’ over the next 25 or 30 years, repaying what is likely to be twice the original loan amount.
Yes, you are likely to be on a path that sees you paying for your family home ‘twice’!
Informed home owners are now challenging this old fashion ‘set and forget’ loan strategy. As a result, they will own their homes much sooner, saving tens of thousands, if not hundreds of thousands, in interest repayments.
While you are testing your borrowing capacity for an investment property, why not ask your Broker to make some suggestions around how you can implement a strategy to ‘pay your house off sooner’.
Why Negative Gearing Is Usually A ‘Negative Experience’.
Most Australian investors are aware of the tax incentives available to them when they buy an investment property. This incentive system is known as ‘Negative Gearing’.
These incentives were put in place by the Australian Government to encourage private investors to supply much-needed housing in Australia, saving the Government from the cost of supplying these homes. These generous tax incentives set Australia apart from most other countries, providing fantastic incentives for Australian property investors.
Unfortunately, though, the vast majority of investors poorly utilise this opportunity and are regularly left with big out of pocket expenses they need to service from their ‘after-tax’ income.
Most investors don’t take the time to understand the importance of targeting the right properties to gain maximum advantage from our Negative Gearing laws.
Poorly selected properties offer investors the ability to claim a tax benefit based on ‘losses’ accrued through large out of pocket holding costs. The average investor could find themselves benefiting just 37 cents (depending on their income tax rate) for every $1 you have drained from your pocket. Yuck!
The pressure of carrying a typical negatively geared property can put pressure on relationships, affect your health, and steal away from your weekly lifestyle budget. But all is not lost, negative gearing can also be a very positive experience when you understand how to maximise its benefits.