How will the budget changes affect the average property investor?
In the almost 20 years that I have been actively investing, the subject of negative gearing has been a hot topic. Yet, despite all the talk and blustering, little has actually changed. Until now. So should we be worried? The short answer is no. Why? Let me explain.
The main reason you buy a property is its potential for capital growth. You should never buy a property simply to get a tax rebate. Remember, the very generous tax benefits that Australian resident taxpayers are entitled to claim simply do not exist in the vast majority of countries. Yet there are many property investors in these countries that have created extraordinary wealth, all without the benefit of negative gearing. Your focus should not be on how much a particular property will cost you to own now, but rather on how much wealth it will create for you for your future.
Secondly, if you use the right strategy you will still be able to claim a generous tax benefit similar to what was available to you pre-budget. The changes mainly relate to the purchase of established properties, where fixtures and fittings have already been depreciated by a previous owner. Until these changes are legislated a lot of the detail is missing, but It appears that purchasing a new property will be exempt from these changes.
My strategy has always been to buy new. It allows me to attract a premium tenant. I can anticipate my cash fl ow much more accurately as I will not incur any unexpected expenses in the early years of ownership. It also allows me to choose a builder that I trust. And crucially, my strategy exempts me from the recent tweaks to the rules. So for me there will be very little change, just business as usual. Those who have followed a different strategy, ie buying established properties, may want to reconsider in the light of recent changes whether this is still the best strategy. They may actually find that a "buy new" strategy works even better for them than their previous strategy prior to the changes. If, like me, you want an affordable property with great potential for capital growth, that pays for itself, doesn't cause any headaches, and helps you to achieve your long-term goals, a change in strategy might help you to still reach your goals, and more quickly and easily than you might have imagined.
While a negative gearing benefit can help to cash fl ow a property, it is not essential to creating wealth through property. The residents of many other countries manage quite well without having to rely on the government subsidising their private investments. However, the new rules will affect certain investors more than others, and it will still be possible to get substantial help from the ATO if you select the right type of property.
NEED HELP WITH YOUR PORTFOLIO? Ian is passionate about helping others realise their goals through investing in property, and can be contacted at Ph. 1300 850 038