The cost of financing a rental property always exceeds the income from that property. If you are looking to purchase a rental property on a bank loan to make profit---it will not work. So why do people invest in houses and make a loss? The primary reason for investing in residential properties is to benefit from the capital gain in the price of houses. History has shown that in the long term houses increase in value. The size of the increase is in the order of 7-8%. With this increase compunding, a dwelling will doube in price every 10 years or so. At times, house prices may stagnate or even decline, but in the long term, they will increase. It is this captial gain that the residential investor uses to increase their net worth. A by product of owning an investment property is that the investment will make a trading loss. Each year the expenditure on the property will be greater than the income from the property. This loss can be off set against other income. When income is lower, tax will be lower.
A Word of Caution:
Don't become emotionally involved in your investment. While buying good quality is sensible, putting highly priced items into an investment property will not increase its value in the long term. Do not expect to make a large gain overnight. Residential Porperty Investment only works in the long term.
New Property or Second Hand Property:
Deprecciation of the buildings is an expense of the investment property which can be claimed to further reduce your tax. The building can be depreciated over the expected life of the property. A new building has a greater life expencancy than a second hand property and therefore a larger depreciation for the building can be claimed.
Multi residential property.
Constructing a dual occupancy can create a larger asset and hence a larger return. Kalana Homes can assist you in finding land and designing a building for investment purposes. Call us now to make an appointment.