Many Australians invest in property as a long-term wealth creation strategy. It’s one of the two major investments Aussies make, the other of course is in the share market.
But one big question hangs over, when you buy your first home or even your next home, should you treat this property as an investment? The answer is yes, you should treat your family home as an investment property and here’s why.
Your family home is a tax free asset.
Your principle place of residence (PPR) is a tax-free asset. This means if the property value appreciates (and as a general rule property doubles in value roughly every ten years) when you sell you don’t pay any tax on the money you receive in the sale.
It’s a thing of beauty in our financial system and we believe one of the best ways you can being to accumulate wealth.
You family home should be a good quality property.
But it comes with a caveat – when you buy your family home (or principle place of residence) you need to make sure you are buying a good quality property. It needs to be in an established or growth area to ensure the property is going to increase in value. And this is why you should be thinking about your family home as an investment. You need to be strategic. The house of course needs to meet your needs as the family home – this might be located near schools, parks, public transport or a town centre. But it also needs to meet your needs as an opportunity to improve your financial position over time.
Generate equity using the family home.
As your property begins to appreciate you generate equity. This is the difference between the value of the property and what you owe on your home loan. Effectively your loan to value ratio (LVR) decreases over time, especially if you are paying off principal and interest. When your LVR drops below 80% you are able to use this equity to purchase another property – this is a very common approach that many first-time investors utilise.
Alternatively, you might let the property continue to appreciate and then utilise the equity when you sell to take your next step in the property market by upgrading on your next purchase.
Utilise your equity to grow your portfolio.
Being able to access those additional funds (the equity) in a tax-free environment has been a core reason so many Aussies are able to successfully upgrade their homes or purchase investment properties over time.
Given you’re going to be spending a huge chunk of your income on this purchase over the next thirty years you should be getting quality advice from an accountant, mortgage broker and buyers advocate before you jump in.
A buyers advocate is a great person to consult with on this front, we’d definitely recommend you speak to someone with intimate knowledge of the market you are going to purchase in – get in touch if you’d like to add a buyers advocate to your entourage via firstname.lastname@example.org or call us on 03 9421 1651.