C
apital Gain.
They go up in value over time, even when you sleep.
Leverage of your time.
Most people only earn money when they work (personal exertion) With investment property, someone else (the tenant) goes to work and pays the rent (a high percentage of their earnings) to you.
Rental increases.
The rental income increases over time without your effort, even when you sleep.
Hedge Against Inflation.
In fact history shows that residential real estate on average increases 2.5% to 3.5% per year more than inflation – and you don’t even need all of the money to participate. Say you paid $50,000 deposit on a $500,000 and the property value increases just 10% to $550,000, your $50,000 has turned into $100,000. That’s better than money in the bank.
Tax Benefits.
Many of the tax deductions are “non-cash” deductions. These are tax deductions that you never actually paid for, they are incentives from the government to be a landlord and provide housing. Two examples are “Depreciation” and “Building Allowance”. Typically these give you around $12,000/year in tax deductions despite no actual outlay by yourself. You don’t actually incur these expenses.
Tax Shelter Benefit.
If you never sell the property, there is no capital gains tax. The capital gains can grow exponentially on top of each other without the burden of being taxed along the way. Even if you do sell, as long as you have owned the property over 12 months the capital gains tax is halved. Say your capital gain was $400,000, you only pay capital gains tax on half i.e. $200,000. If your marginal tax rate is 38.5c, you pay just $77,000 tax on a $400,000 gain. That’s just a 19.25% tax rate.
Cash Flow.
Over time, as values and rents increase and the loans decrease, the property provides an ever growing cash flow surplus to be used to replace your income, add to your income, retire earlier or retire better off.
Means Of Accumulating Wealth.
As above, with each monthly payment, the loan becomes lower while expecting and anticipating increases in property value. You get rich two ways at once, the loan going down and the value going up.
Pride Of Ownership.
A residential investment property is something tangible (unlike most other investments), something you can look at and feel proud of.
Significant Rate Of Return On Equity.
You might buy the property with a 10% or 20% deposit or no deposit at all by using equity, yet still control 100% of the capital gains and 100% of the rent increases – forever. At times, the capital gains can be impressive e.g. property values approximately doubled in Brisbane from 2001 to 2004. It was similar in every capital cities. Such times are not unique, they repeat and repeat – and have done so for a century and for much longer in Europe. No-one can say when the next “doubling” will take place, but one thing is for certain – that it will happen. The only way to be sure of catching every wave of property capital gains is to always own.
Security To Acquire Further Investments.
Even the largest investment property owners, those with hundreds of properties started with just one property, then used that equity and income for more, then used that equity and income for even more. “Tall oaks from little acorns grow”. And it all gets easier as you go. If you run a marathon (or any other human endeavour) it gets harder the further you go. To progress and ride a residential property portfolio gets easier the further along you go.