10 October 2012 ~ 615 Comments

Are you driving your investment property?

Did you know that it costs around $120 per week to finance the average small car¹?

Many Australians have a love affair with new cars and are wanting and willing to buy a new car as soon as the last one is paid off.

Are you one of these Aussies?
If you are, or know someone like this, then let’s consider:

  1. How many of us really NEED a NEW car (after 3-5 yrs)?
  2. How could $120 per week make a real difference to your life?
  3. Did you know that you could probably afford an investment property for less than $120 per week?
  4. You already know that cars depreciate in value over time and properties appreciate in value over time, yet we are all guilty of investing in a world of instant gratification (a new car NOW) as opposed to a world of delayed gratification (a more secure and financially safe future).

Did you know that approximately 80% of Australians end up on some form of government assistance in retirement?

Did you also know that ONLY 20% of Australians invest in property?

Coincidence you think? I’d say not.

We all like new cars… however… would you consider
coping with driving your current car for a few extra years if you knew your financial situation would be improved?

Perhaps?

If you are willing to hold off on a new car purchase, you could either:

  • buy some other “toys” with your extra cash,
  • have that holiday you’ve been meaning to take, OR (and this would be my recommendation)
  • use that extra cash to start building wealth and become part of the 20% of Australians who actually enjoy retirement.

There are many different paths to building wealth and $120 per week is usually enough to get you started. Let’s have a look at two options (from the many available) to use that extra cash.

An investment property

Take a quick look at the numbers:

Purchase cost
Median unit price for Australian capital cities $420,000²
Interest rate 6%
Weekly repayments $629
Expenses
Rates (will vary between councils) $1,200pa
Property management (based on 10% of rent) $2,137pa
Insurance $500pa
Maintenance $600pa
Total expenses $4,437pa or $85.33pw
Total weekly cost for investment property $714
Income
Average weekly rent $411³

How do the numbers work?
A quick check on the numbers will show $714pw in mortgage and expenses and an income of $411pw. This leaves a shortfall of $303pw.
But didn’t I say it would cost less than $120pw?
Yes, but the story doesn’t end here.

Using a combination of depreciation on the property AND claiming your finance expenses against your income you can get a combined tax reduction in the order of up to approximately $10,000pa*!

This reduces your weekly commitment (covering your new investment property) to just $110pw! You can even claim your tax refund in advance from each pay cycle to help with cash flow. Search the ATO website for PAYG withholding variation application for more details.

Another option could be to:

Pay off your home loan sooner

If you are not yet ready to take the next step into the property market then why not pay off your mortgage even faster? If you take the median unit price in Australia of $420,000 with an interest rate of 6% you will be paying weekly repayments around $629. If you add the extra $120pw to the mortgage, this will boost the repayment amount to $749pw.

Now I’m sure you will guess that this will turn into some serious savings – in fact it could take up to 12 years* and save you a whopping $126,000*+ in interest over the life of the loan!

So NOW what are you going to do when you pay off your car?

If you’re keen to know more, please call or email the office for our article on “How the tax man helps pay for my investment property”.

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