Why invest in Australian residential real estate...

Australia is a country growing everyday...

With 'GROWTH' comes demand and with 'DEMAND' comes opportunity...

• Australian residential property has doubled every 7-10 years for the past 200 years...
• Australia's population is now more than 22,500,000...
• Australia's population to exceed 28,000,000 by 2029...
• Australia will reach a household shortage in excess of 640,000 by 2029...
• Australia's population predicted to pass 40,000,000 by 2050...

Those people who see the opportunity and 'take action' get rewarded...

It has long been accepted that residential property is one of the safest investments an 'owner occupier' or 'investor' alike can make.

Here in Australia the systems and legislation in place, instill reassurance and confidence into the purchasing process.

With government (Local & State) and industry requirements needed for any property transaction to take place legally, ensures that, when you utilize property professionals, your position is almost 'certainly' protected with your purchase...

Several elements favour and assist with the performance of residential property investment, the major ones being;

• Owner Occupiers (Family Home)
• Reduction of Personal Tax
• Additional Personal Income

Owner Occupiers add Security

With the greater majority of residential owners here in Australia being the typical 'Mum & Dad' buyer purchasing the 'Family Home', (The Great Australian Dream) in an attempt to achieve financial security for themselves and their families through property ownership. Statistics now estimate this type of ownership is at more than 75% of all property ownership here in Australia.

When looking at this figure from an investment point of view, this now represents an excellent opportunity of mitigation from competition or, potential over saturation by similar investors trying to also obtain their wealth from the same investment pool, unlike other investment vehicles.

The 'Family Home" is not only the biggest purchase by a family but usually is also considered the "prize" possession, this means when fluctuations within the economy (including interest rate hikes etc) generally sees the home owner tighten the family purse strings in order to hold on to their most valuable asset, "the family home"... not panicking and quickly selling the family home.

However, in other investment options, this very same change in the economy can see speculation and usually the unnecessary sale or disposal of the investment, which in turn only causes further wide spread speculation and ultimately the declining value of the asset being disposed of, ultimately rendering the asset worthless or hard to dispose of entirely...

With residential property owners, the sturdiness of the "family home" buyers holding on for the long term, generally eliminates a potential mass sale of the asset and for the residential investor that has a tenant assisting with the repayments, usually allows the property investor the ability to also hold for the longer term avoiding similar potential losses of other investment classes.

Assistance by Reduction of Personal Tax

As a residential property investor the Australian Taxation Office (ATO) has a variety of claimable allowances available for a property investor to help reduce their personal income taxation obligations currently being deducted from their weekly pay packet. The ATO view that this acquired asset is actually assisting the country in supplying additonal housing required for the greater local community to utilize. However, this acquisition of the investment asset creates new additional costs to the investor not previously incurred. These new investment expenses incurred by the investor, which include, finance commitments, along with other depreciable items allowed by the ATO, are considered 'acceptable expenses' and as such can be deducted from the gross income of an individual purchasing the investment property. (see link below for a guide)

• Click here to visit ATO Rental Properties Expenses - Individuals

A large number of first time investors are probably unaware that they have the ability to reduce their weekly tax obligations currently being deducted from their salary. Most taxpayers (and novice investors) claim tax back when lodging the end of year return but are unaware that this refund may be obtained on a weekly basis offering some valuable cashflow back in their pocket.

Unlike most other investment options, these allowances can assist with the additional costs that impact on the investors ability to purchase and hold the asset for a period of time long enough to see a viable gain...

This tax variation request can be made through an Accountant or contact the ATO direct for instructions on how to apply for this allowance. (see link below for a guide)

• Click here to visit ATO PAYG Individual Tax Variation

The information supplied should only be used as a guide and anyone interested or intending to invest should seek independant taxation advice from their own Accountant.

Increase to Personal Income

As the investor is not the ultimate person residing in the property, this creates a 'bonus effect' for the investor of having another entity (tenant) contributing a very large portion of the holding costs back to them in the form known as 'rent'. This, along with the above taxation benefits from the ATO, the historical growth (double effect every 7-10 years), should make 'residential property' a very viable asset to form part of an investors wealth strategy.

The amount contributed by the tenant is considered "additional income" to the property investor and as such actually increases the individuals personal income position.

This increase in turn, can be utilised by the investor when applying to the lenders for the investment loan. This additional income is usually accepted by the lenders as assessible income which will ultimately assist the ability for the investor to service the loan required to purchase the asset.

Remember, common practice historically for lenders has been to acknowledge 80% of the rental income achievable from the property to be added to the applicants income but important, not to confuse the fact that the ATO will assess the full 100% of the final income achieved for taxation purposes.

The end result of the above contribution split by the parties is derived from the investor/s actual personal income position/s. However, the 'Tenant' & 'Taxation' pay the major funds for the holding of the investment property, allowing the investor to maintain a normal lifestyle while investing...

(Data & Statistics source: Australian Bureau of Statistics, Urban Development Institute of Australia, National Housing Supply Council Report 2010, Australian Taxation Office)