What you need to know about investment property

By Rich Harvey, CEO, propertybuyer.com.au

If you're feeling steady about your financial position and are starting to cast an eye towards your retirement account, you could be interested in buying investment property. Over the long term this can provide you with a nest egg, as well as many other benefits. It's not something that needs to be rushed either - these are long-term options that allow you to take your time with and reap the rewards of over an extended period of time. 

Would an investment property sustain me once I retire?

This depends on the location and the housing market, but smart purchases will always give you great returns. By letting a house out to tenants you can have the rent they pay replace your income - very handy if you decide to stop working to spend more time with your family. In the short term you may find that rent yields do not outweigh loan repayments, but this isn't necessarily a bad thing. Called negative gearing, it means you can qualify for some excellent tax benefits. This tactic is popular among investors as they pay less tax while watching the property itself increase in value, to be sold down the line for a tidy benefit. 

Can I make claims on other expenses?

Yes, when you own a rental property you are able to claim many expenses as tax deductions, regardless of whether or not your property is negatively geared. Interest rates, fees from local councils, ongoing home maintenance and landlord insurance are just some of the costs that you can claim for. You can even make claims when items like ovens or fridges fall in value. If you engage a buyer agent, some of these fees could be deductible as well. 

What about capital gains tax?

When you sell a property, you will have to pay capital gains tax - but it only applies to profits you made in the sale. So if you sell a home for $500,000 that you bought for $300,000 you will only pay tax on the $200,000 profit. If you own the property for longer than 12 months you will only be taxed on half of the profit - perfect for those long-term investments. 

There are many details to negotiate when you decide to buy a rental property. If you want to find out more, we have a series of handy reports that can help you decide if the time is right for you to invest.