First time investors Melbourne

Statistics show that over the last 30 years, Melbourne house prices have grown at an average 7% per year. Values have declined in only 6 of those years, with the average of those losses being just -1% (Source: Valuer General Victoria 2014). Based on this growth rate, Melbourne property has historically doubled in value every 7-10 years, and has a unique ability to grow consistently throughout different economic conditions. The best way to illustrate this is that a Melbourne property bought for $320,000 in 2005 (median house price) is likely be worth well over $600,000 in 2015…an impressive gain considering a tumultuous period that included the 2008-2009 global financial crisis. That’s not to say the market doesn’t stagnate or you can’t lose money in real estate. But if you’re smart, educated and invest for the long term, it’s hard not to make substantial gains.

A strategically geared (structured) property provides opportunity for considerable tax benefits. Deductions can be claimed on your tax return such as loan interest repayments, repairs and maintenance, rates, taxes, insurance, agent’s fees, travel expenses, and building depreciation. Through these deductions property investors are able to access dollars normally paid to the ATO, and instead divert them towards directly funding the investment. Compared with property, shares or holding cash with a bank offers very limited tax advantages, while superannuation tax benefits do not present themselves until retirement. While tax benefits should not be the sole reason to invest, virtually no other investment class actually enlists the tax-man to help pay your wealth building journey!

Property is a commodity that will never be out of favour – everyone needs somewhere to live (but not everyone needs a ‘share’ or a piece of gold). Demand will continually exist for rental properties as there is a finite supply of housing and not everyone can afford a mortgage themselves. The Victorian State Government predicts Melbourne will grow to around 7.7 million people by 2051, meaning the city will require 1.6 million more dwellings than it currently has today. Combined with low unemployment, there will always be demand for good quality housing which places upward pressure on house values and rental income over time. (Source: Plan Melbourne 2014). Australia’s vacancy rates sit at around 2.4% (Source: SQM Research July 2015), with this often much lower in key suburban areas such as where we invest.

There are many methods for funding your investment, however the beauty of property is using banks’ money to your benefit. Financial institutions prefer property to lend for, with most banks only lending around 60% of the value for share investment, and will not use the shares as security. Conversely, banks will lend up to 95% of a property’s value because they have faith in this investment type being less volatile. Banks are also more willing to lend a higher amount and at a lower interest rate for property investment. By leveraging bank funds investors significantly amplify their returns and can begin with less personal finances tied into the property.

A strategically geared property can require no direct cash input from the investor, with tax savings and rental income covering the majority of the investment’s running expenses. With other parties financing the majority of the investment, investors benefit from having their money working productively in other areas such as paying down non-deductible debt (eg: your home loan) or ‘bad’ debt such as car loans. Many people also like the idea of an investment that needs minimal ‘attention’, unlike shares which often require ongoing analysis, speculating and timing. With house prices rarely decreasing in price, it makes an ideal option for long-term investors looking to fund their retirement.