I would like to state the case for residential property investment. This week’s enquiry is from a retired farmer.
He sold his property for a couple of million dollars and his money is in a term deposit earning 3.5%. He realises that, by the time he pays tax on the interest, his capital will be eroded.
His aim is to:
a) Not risk his capital
b) Protect his capital and income from inflation
c) Leave his estate evenly to his 3 children in an uncomplicated format
How does he best address his concerns?
How does he avoid risk to his capital? – All lending institutions agree that the lowest risk is to invest in quality residential property with growth potential, in an area with a population in excess of one million.
How does he protect his capital from inflation? – He is definitely going backwards by leaving his capital in the bank and paying tax on the interest. It is likely that in real terms he will lose 50% of his capital in 10 years. However, if he buys three quality residential properties in a qualified area, not only will his capital be protected from inflation but he will also protect his income.
What do I mean protect his income? The rent on a residential property investment will increase with inflation; our clients are now receiving $500 rent, per week, for a house that would have rented for $250 per week 10 years ago.
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Apart from protecting his capital and income from inflation by buying quality residential properties, are there other advantages?
If he invested in one of our properties for $500k, he would receive a conservative net return of about $18k p.a., which is 3.6%. His taxable income would be reduced with depreciation, by about $11k. Not only would he earn $18k, he would only pay tax on $7k after the $11k tax reduction?
His third aim was to leave his estate, evenly, to his three children in an uncomplicated format. This property investment strategy allows him the opportunity to leave each child a house; it does not get much easier than that.
Having said all this, every situation is different and I would suggest a free, no obligation consultation to better assess the requirements of any individual’s unique situation.
Steve Taylor
At the helm of Steve Taylor & Partners, Steve Taylor has been delivering expert advice and product knowledge to clients for over 30 years. Steve Taylor & Partners provide individuals, couples and families with the right strategies to create wealth and change their lives with solid bricks and mortar.
DISCLAIMER
Steve Taylor & Partners blog is opinion and not advice. Readers should seek their own professional advice on the subject being discussed. The figures stated in this article were accurate at the time of publication. For up to date figures, please contact our office.
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