Property investment is continually evolving with new initiatives and the government introducing various incentive schemes and pulling on various taxation levers to direct focus in the direction they want the industry move.
Once upon a time, think back to the 1960s and 1970s, the idea of building a brand new house to rent out as an investment home was unheard of. However, today it’s the norm and thanks to higher tax deductions generated through depreciation, higher rents and lower maintenance costs the gap between what the investor needs to pay and what they earn in rent from the property is much smaller than it was.
The most common strategy through conventional property investment has been to try to maximise the tax deductions and rent while reducing holding costs to give an affordable cashflow position. Then, fingers crossed, the value of the investment increases and wealth is generated for the investor through the growth in the assets value. This worked great through the 1990s and 2000s, however, over the past ten years, from 2010 to now (and especially with the increasing impact of COVID-19) there hasn’t been the capital growth to support the proposed outcomes of wealth creation. Investors have had the choice to either cut their losses and sell for a loss or hold out for that promised capital growth while managing the cashflow shortfall.
Today Government Policy has moved to stimulate construction of new buildings. Recently depreciation allowances on established property chattels & fixtures were withdrawn to all except the original owner, making these far less effective as investment vehicles. At the same time, other cash and rental incentives have been introduced to further stimulate new housing and transfer some government housing & accommodation programs into the private sector. These changes have given rise to enormous opportunities for those who can package them together to best effect. It’s not unrealistic to be the owner of a 3 bedroom home that generates a Federal Government guaranteed rental of $70,000 or more per year while still attracting the same tax incentives available to conventional negative geared property that would earn only $18,000 for a similar initial capital outlay. A bit like getting three homes from just one.
To put this into a simple scenario comparison.
For an outlay of around $420,000 for a conventional negative geared house & land package the investor would expect a rental return in the area of $340 per week and total tax deductions of around $30,000.
A very similar house & land package, done correctly, that connects to all the newly evolved government incentives might cost a bit more at say $450,000 to $480,000 but now rents for around $1,200 per week and still generate the same $30,000 in annual deductions.
Clearly, if the rent is $40,000 more than the costs to hold the property the requirement for capital growth is not as strong, but a welcome addition if it happens. That said, capital growth will happen over time but why wait with fingers crossed because its desperately needed when you can generate your wealth through massively positive cashflow rental yields
GR8 FIFO Consultants, with GR8 Property, are about changing the focus from the absolute reliance on capital growth to one where the rental income can match those of a higher risk commercial property, without exposing the investor to the same level of risk you get from a commercial property.