The first person I heard talk at an investment seminar was Jan Somers. I learned heaps and realised I had previously known nothing much about investment, even though I had worked in real estate for years.
She and her husband had first invested this way, and it worked for them. They repeated the strategy and it worked again. Later they started to study investment and learned lots more other ways to do it, becoming experts. That taught me to learn everything I could, to develop expertise.
This strategy is so simple –
When you want to move to another home, just keep the one you already have and rent it out.
If I had kept every property I ever owned that strategy alone would have made me better than that TV star – that alone would have made me the “6 Million Dollar Man” PLUS!
There are some significant advantages:
- You don’t have to pay most of the usual buying costs, particularly State Stamp Duties – that’s thousands of dollars that stay in your bank account!
- You don’t have to put any effort into finding an investment property. The busier you are the bigger the benefit.
- There are no hidden faults because you know the place inside out.
- You don’t have to think about the risks of investing. You were happy there, so you are sure others will be.
- You don’t have to wonder if you can afford to invest. When you went for the new home loan, you just estimated what rent you would get and the bank said “Yes!”
How good is that?
However, there are some other points worth considering:
- Your new loan is a home loan, not an investment loan, in the eyes of the ATO. That means it is not tax deductible, even though its purpose in your eyes is to create the rental income.
- It is in the name/s that you bought it as a home, which may not be the most advantageous for investing. Tax deductions are maximised by having the investment in the name of the person who has the higher taxable income.
- The property may not be in the best location or be the ideal design for investment purposes. This can make a huge difference in the long run, particularly if it is in an area that will not go up much in value over the years.
- You may not appreciate its appeal in the rental market. In the same way that people who want to sell their home have difficulty understanding that others don’t love their home as they have done, and thus don’t see its value to be as much as the owners want, renters may not see your palace as so palatial!
- You are emotionally attached to your old home, and you can be deeply hurt by others not caring for it in the way you have. Investing is best done in a business-like, unemotional way.
What if you sold the old home, and then invested in a different property?
- You can pay down your new home loan to minimise your amount owing personally. You are the only one who pays for your home loan, out of your net after-tax income. There is no tax deduction. It is personal debt which you should get rid of as soon as possible. This is a massive improvement in your personal finances.
- The new loan to buy the invest is an investment loan, and every penny of interest and fees is a tax deduction. This is a massive improvement in the numbers that make investment pay.
- You can consider whether to buy an existing property or a new one, which may come with really great additional tax deductions.
- The purchase decision can be made in a logical, sensible, cold-hearted, dollars-and-cents way, as the property that will serve your personal and financial situation, to achieve goals you have thought about and will attain in time. All emotion should always be excluded from investment decisions.
- The purchase costs are just part of the set of numbers that were taken into account when planning to invest, as a business expense, so they are not a problem.
- You simply use the right people to advise you, starting with your property investment mentor who selects an ideal property, and including people such as the finance broker who gets you the best deal. It doesn’t have to be hard work or stressful for you.
But …
Beware of one trap. I watched my own brother make this mistake.
He had kept his previous home when he remarried and they bought a home jointly. Down the track, when he thought there might be ongoing maintenance problems he decided to sell his old place. I advised him that was a sound idea, but only if he replaced it with another investment property. Having sold, he then never got around to buying again. He would have been better off keeping the old one longer, even if it had problems, because the growth in value would have far exceeded any extra expense.
So if you decide to sell, first make a plan, preferably with a mentor, to then invest to get the benefits of being actively in the property investment market.
After all, you can only get the results of investment by investing.
Call or message me NOW for a free meeting.
Warning! All of this advice is general in nature and is not sufficient for you to base any decision-making on. You must discuss all relevant matters with suitably experienced and qualified people (not just looking online!).