According to research by MCL, one in two Australians live pay cheque to pay cheque, two in 85 of Australians say they spend beyond their means and three to 23 percent had no emergency funds.
“If living through a global pandemic has shown us anything, it is that a ‘pay cheque to pay cheque’ strategy is not a good one,” says Gerry Incollingo, MD of accounting, property and finance firm LCI Partners. “There are many different saving and investment strategies that can get you ahead when it comes to your finances.”
For Gerry, owning an investment property is one of the big ones.
“While putting money aside in a savings account is one thing, your money can actually be working much harder for you and earning you more if you invest it wisely,” says Gerry. “If your head is spinning, don’t panic. I’m going to talk you through the benefits of owning an investment property.”
Why own an investment property?
An investment property is a property that you don’t live in, but instead own and rent out. While when you go to sell this property, you may have to pay capital gains tax, which can be five to 20 percent of your profits depending on your financial situation.
The benefits of owning an investment property include:
- You have an asset, which will give you extra pull when trying to get a loan from the bank in the future
- You have an asset of value that you can sell if you need to
- You can have residual income coming in from the rent, assuming you invested wisely
- The property will likely go up in value over time
- The property can act as a personal tax write off too
How to choose your potential investment property
There are a lot of brokers and experts who can help you with this, but Gerry’s top tips are:
- Invest in a potential high-growth area. For example, if the area has had a surge of people moving into it, or they have built a shopping centre, train line, housing estate or a school nearby. If the area you invest in has those facilities, there will be demand to live there.
- Look into who the demographic is of the people moving there.
- Check out how much the other properties with similar features to the ones you are looking at are renting for. You want to make sure the property is positively geared.
- Look at the rental turnover. You want people to stay in your property for longer. By considering your rental turnover, you can reduce the rental prices and make people more prone to spending more time renting out your property.
How to make it work for you
“Always aim to have a positively geared property. You don’t want to be losing money on it,” says Gerry. “However, even if you break even at first, odds are that the rent and the value of the property will go up over time.”
Try not to pay too much of your loan back for an investment property. Generally speaking, the more debt you have on an investment, the more tax you can write off. This is not the case for a home you live in, however – you can’t write that off as a tax expense. If you are living in the home, you want to pay it off quickly.
Get a good real estate agent. While they do take a clip of the rent, they also take the work off your hands so your property truly becomes residual income.
How to save for it
Try to put aside 20 percent of your wage where you can. Put it into a higher interest saving account which is out of sight so you don’t spend it.
I would also recommend downloading a micro-investing app which can help you save too. Apps, such as Raiz, will round up your expenses and then save the difference for you. It will then invest that pocket change so you’re not only saving, but you’re making a bit of money too.
While saving for your deposit, also consider putting some of it into a long term investment account which can earn you more interest, but will mean you can’t get access to the money for a period of time. You may also consider investing in blue chip stocks, which are among the least risky to invest in.