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An investment property, broadly defined, is real estate purchased with the intent of earning a return on investment through rental income or the future resale of the property. The property is not intended to function as a primary place of residence (PPOR), and therefore the purchaser will usually have a different set of criteria they will assess to figure out whether they want to purchase the property. However, a property investment is a complex decision and requires a lot of ongoing management. This is where the support of helpful property team members comes in such as a buyer’s agent, property manager and property investment accountant.

Understanding Investment Properties

Investment properties are real estate assets acquired for the primary purpose of generating income, either through renting or capital appreciation. They can take various forms, such as residential homes, commercial spaces, or vacation rentals. Key factors influencing the success of a property investment include location, market trends, rental income potential, and effective property management.

Why do people choose to buy investment properties?

Individuals may choose to purchase an investment property for several reasons, each driven by unique financial goals and strategies. Here are some common motivations for investing in real estate:

Rental Income:

Generating ongoing rental income is a primary reason for investing in property. By leasing the property to tenants, investors can receive a steady stream of income, which can contribute to covering mortgage payments and other property-related expenses.

Capital Appreciation:

Investors often anticipate that the value of the property will increase over time. This capital appreciation can result from factors such as upgrades to the property, increased value of the land due to development and infrastructure improvements in the surrounding area, or overall market trends. As the property appreciates in value and mortgage payments are made, investors can accumulate equity, contributing to their overall net worth.

Diversification of Investment Portfolio:

Real estate offers diversification benefits to an investment portfolio. It is an asset class that may not move in sync with other asset classes like shares, funds, and bonds, providing a hedge against market volatility and potentially forces such as inflation.

Retirement Planning:

Some individuals view investment properties as a means of securing income during retirement. The rental income can serve as a ‘passive’ income stream, supporting financial stability in retirement years.

Control Over Investment:

Unlike some other investment vehicles, real estate offers investors a level of control. Property owners can make decisions about property management, improvements, and strategic planning to enhance the property’s value.

Investment properties provide more control over the investment. However, they also require more research and upkeep. Many landlords choose to hire a property manager and other investment property team members to reduce the time they spend working and managing their investment property. However, these costs (while some may be tax deductable) naturally reduce the profit margins of the investment.

Importance of a Property Investment Accountant

Tax implications for investment properties can be challenging to navigate and can significantly impact overall returns, and the profitability of the asset. This is where a property investment accountant becomes an invaluable asset. These professionals specialise in managing the financial aspects of property portfolios, offering expertise in tax planning, financial reporting, and strategic investment advice.

One of the primary advantages is the ability to maximise tax deductions. A skilled accountant can identify legitimate deductions, potentially reducing the taxable income associated with the investment property. Ensuring compliance with evolving tax laws is critical for property investors to reduce the chances of tax penalties.

Tax advantages of an investment property

Australia has a variety of tax laws that reduce the taxes associated with property investing. Some tax advantages include:

  • Interest Expenses: the interest paid on the mortgage for your investment property is tax deductible, providing further financial relief.
  • Negative Gearing: If your investment property generates a total net loss for the financial year, this can potentially be used to offset other taxable income. This method is also known as ‘negative gearing.
  • Deductions/ Depreciation: Expenses related to the maintenance and management of the property, including property management fees, insurance, and repairs, may be tax deductible.

Consulting with a property investment accountant is recommended to ensure a comprehensive understanding of specific tax benefits and obligations tailored to your investment strategy.

Do you need a property investment accountant?

Hiring the services of a property investment accountant at Centre Of Wealth provides you with a qualified financial partner for everything tax related. From investment properties to making sure your taxes are done correctly and on time, Centre of Wealth is a name you can trust for tax advice in Melbourne.

Receive tax advice in Melbourne today:

Get in contact with a property investment accountant today via the contact page on our website! Or call either of our Melbourne branches:

Upper Ferntree Gully: 03 9758 1202

Bentleigh East: 03 9570 4565