Investment property – is it for you?

Once you get the hang of paying off a bond and you start to see the value in owning a home, you might want to consider purchasing another property as an investment. While this might sound like an expensive endeavour, it can be extremely beneficial, especially if you get your ducks in a row and your facts straight – before jumping in head first.

For example, seasoned property investors often advise first-time property buyers to regard their initial property purchase an investment and not a lifestyle decision. This means you’ll buy your first property to put tenants in and not to live in yourself. While this means you’ll need to forego the psychological and material rewards of having your own property to call ‘home’, this is a clever way to generate a passive income to pay off your first bond, while you continue to rent elsewhere.

What’s the deal?

Unlike purchasing a holiday home, a property investment is there for the buyer to earn an additional income. Whether it’s through renovating and selling the property off a higher price (known as ‘house flipping’) or through long or short-term rentals, the idea is getting a return on investment (ROI).

However, before going on a spending spree, or applying for another bond, it’s important to note that there are a few best practice guidelines to follow. For instance, applicants need to ensure they have an excellent credit score and are able to put down as big and healthy a deposit as possible.

Benefits

Property has a good track record of increasing in value over time, which is why it’s such a good investment. One of the key factors in owning an investment property is that you can rent it out and, essentially, the renters pay off your bond. Once your bond has been paid off, or you have built up enough equity on that bond, it’s simply money in your pocket to put towards a new property purchase, or to buy other, needed big ticket items. Furthermore, it’s an additional asset for you to either use to subsidize your income, manage your own business or even use as leverage further down the line.

Things to consider

By purchasing property as an investment, there are a few areas that need to be addressed. Firstly, if you’re going to be renting your property out, it’s very important to screen your tenants first to ensure that they will be paying tenants who can afford the rent. If you have an agent managing your rental property, they will be able to help you with this screening process. Always be sure that you know who you’re renting to, always write up a rental contract, and always take a deposit.

Damage to assets is one of the leading causes of landlord woes. So, it’s vitally essential that you’re financially prepared for repairs. Whether it’s fixing a gutter or having to replace a geyser and the floors it ruined when it burst, as a landlord, you’re the one that’s financially responsible.

Tax implications

An investment property acts as a form of income, which means you have to pay tax on capital gains. However, you can claim back from rates, bond interest, advertising (which is applicable if you’re renting the place out), agency fees, repairs, security and levies, structural insurance and garden services.

Regarding deposits paid on your rental properties, these amounts are not tax deductible, provided it’s kept separate from the income account.

So, if your financials are in order and you’re ready to take the first steps in becoming a real estate mogul, business owner and landlord simultaneously, consider choosing SA Home Loans as your reputable lender and take the first step in purchasing property as an investment.

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