Property ownership is, in my opinion, one of the best ways to create wealth – now and for the future. As a mortgage broker, you have a unique opportunity to help clients understand how to leverage property ownership for their future wealth creation. Below, I discuss the key strategies and best practices for using property ownership to build wealth over the long term.
1. Invest in property for capital growth
Capital growth is the increase in the value of a property over time, and this is what we want when building wealth! Whether it’s the home you live in (and own), or an investment property, the higher the growth the better for multiple reasons.
You can leverage the growth in your own home to release equity. The equity can then be used to purchase another property or add even more value to your existing home (a renovation, extension or improvement for example).
If your property is an investment property and the value increases, you can also potentially increase the rent, or leverage the growth to again buy a further investment property… you see the pattern here!
This is often the primary source of wealth creation for property owners. To achieve capital growth, it is important to invest in areas with high demand, such as growing suburbs or areas with new infrastructure or amenities. I help my clients to understand the fundamentals so they can research the areas they want to buy in and I provide bank estimated valuations so they can know if the price they are going is below the market value or above it. If my client’s want to use the service of a buyer’s agent that specialises in Property Investment, I liaise directly with them so that we work together cohesively to help our client achieve their property goals while reducing the risks with buffers, insurances, and sticking to a property plan. I can even recommend Buyers Agent’s that are part of my trusted professional network that have a track record of success.
2. Rent out the property for positive cash flow
Renting out a property can provide a steady stream of income, which can be used to pay off the mortgage and cover the holding costs of owning the property. This is a particularly useful strategy for property owners who have multiple properties, as it can provide multiple streams of income. To maximise rental returns, it is important to choose a property with a high rental yield and low vacancy rates. The higher the rental return, the less you have to contribute out of pocket to hold the property which doesn’t eat into your overall return on investment (ROI). I can support you through these considerations if this is something you’d like to explore. The higher the rental income, the more borrowing capacity you will have to keep growing the portfolio.
3. Utilise tax benefits
Property ownership provides several tax benefits, which can help to boost wealth. For example, property owners can claim tax deductions for expenses such as mortgage interest, property management fees, and repairs and maintenance.Deprecition is also a non tangible tax deductible expense that can turn a positive cashflow property into a negative geared investment. Additionally, when a property is sold, the capital gains tax (CGT) is calculated based on the difference between the sale price and the original cost of the property, with a 50% discount for individuals who have owned the property for over 12 months. Please speak to a Tax Accountant for more information about ownership structure and tax implications.
4. Diversify your portfolio
Diversification is a key factor in any investment strategy, and property ownership is no exception. By owning a range of properties in different locations, and with different types of tenants, we can reduce the risks associated with a single property investment. This can help to minimise the impact of any downturns in the property market, and ensure that they have a stable and diversified source of income over the long term. If the rental income increases in some properties but doesn’t in others, the additional rent can help cover the holding costs of other properties in your portfolio so you don’t have to contribute as much from your after tax income to hold the property.
5. Consider property development
Another way to leverage property ownership for wealth creation is to consider property development. This involves buying a property with the intention of renovating, extending or developing it to increase its value. This can be a great way to make a profit, as the increased value of the property can be sold for a profit or used as collateral for additional borrowing. However, it can be a time consuming process and if you’re not in a position to carry out the development work yourself, then you will likely incur a lot of costs (building, contractors etc.) long before you see any returns. You will need to build your trusted professional team to help you with property development as there are many risks you can avoid by working with professionals that have done it many times before, know what to avoid and can teach you along the way. There is a plethora of good education on property development available.
Seek professional advice
Finally, it is important to seek professional advice when leveraging property ownership for wealth creation. As a mortgage broker I can provide valuable advice on the best mortgage products for you, and assist with the loan application process. In addition, my extensive partner network can also help you make the best decisions for your situation (e.g. a financial planner can provide advice on the best investment strategies and help to create a wealth creation plan that takes into account your personal goals and risk tolerance).
This is one of my favourite topics because I firmly believe that property ownership can be a powerful tool for wealth creation – and it can be much easier than many people think when you have the right knowledge and guidance. By investing in property for capital growth, renting out the property for positive cash flow, utilising tax benefits, diversifying the portfolio, considering property development, and seeking professional advice, you can give yourself a strong and diversified property portfolio that can provide a stable source of income and wealth over the long term.
If you’re keen to explore this option further or you’d like a zero obligation chat, here’s my booking link.