Why buy an investment property?
Investment properties allow investors to diversify their portfolio into the real estate sector whilst also taking advantage of the leveraged returns available by owning property. Investment properties are typically considered to be long-term investments, (and while there are short-term holding strategies available,) they provide many real estate investors with a steady source of income over an extended period.
Some of the potential benefits of owning an investment property include:
- Additional income streams: While upfront capital is required to purchase the property, rent from an investment property can provide a consistent stream of income that isn’t correlated to a salary or regular employment. Properties also have the potential to provide two sources of revenue if the investment increases in value over time. This second source of revenue comes in the form of equity or capital gains.
- Tax benefits: There may be tax benefits associated with owning an investment property, such as deductions for mortgage interest, depreciation, and other expenses.
- Inflation hedge: Real estate can be a hedge against inflation as rental income and property values may rise with inflation.
There are several potential risks and challenges associated with owning an investment property and taking on leverage for an investment. Risks can include maintenance costs, tenant turnover, and fluctuations in property values. Investment properties can require significantly more time, energy, and capital to invest in than many other investment avenues. These should all be thoroughly discussed with a real-estate and financial expert before making any investment decisions to determine if it is the right strategy for you.
Capital Gain Tax – Property, Shares and Crypto
An ATO Assessment of the tax repercussions of assets such as property, shares and crypto.
https://www.ato.gov.au/Individuals/Ind/mytax/myTax-capital-gains-or-losses-digital-resources/
Tax Advantages of an Investment Property
There are several tax advantages of buying an investment property, including:
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- Depreciation: Buildings and equipment have a limited lifespan and over time their value decreases. This decrease in value, known as depreciation, is a tax-deductible expense.
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- Interest expenses: The interest you pay on the mortgage for your investment property is tax deductible.
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- Capital gains tax benefits: When you sell an investment property, you may have to pay capital gains tax on the profit you made from the sale. However, you can defer paying capital gains tax by “rolling over” the sale proceeds into a new investment property.
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- Losses: If your investment property generates losses, you may be able to use those losses to offset other taxable income.
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- Rent deductions: The expenses associated with maintaining and managing an investment property, such as property management fees, insurance, and repairs, are tax deductible.
It’s important to note that tax laws and regulations can change, so it’s always a good idea to consult with an investment property tax accountant to determine your specific tax benefits and obligations.
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