There can be very few more important financial decisions than picking the right property to invest in.
Decision making is a refined skill. Really good decision making starts by first exploring what ALL of your options are. Often, it won’t be obvious to people what all those options are – one can’t know what they don’t know – so seeking the advice of a genuine specialist will expose us to more options.
All property investors ought to first start their decision making process by acknowledging that [as at 2015] there are 9.6 million properties. That’s a lot of choices.
Historically speaking, Australia has built on average 160,000 new dwellings each year. Over the last few years, this figure has increased to around 200,000 new dwellings per year. For the purpose of the exercise, let’s say that 180,000 new dwellings are added to the existing pool of 9.6 million dwellings each year.
Now, it is true that there are bigger tax deductions (depreciation benefits) to claim on brand new property. But, depreciation deductions can also be significant on established properties, too.
At the end of the day though, taxation benefits should not be any investor’s primary reason for investing. While we all want to take advantage of every benefit available, the primary reason for investing is to accumulate a big enough net asset base so that, in the future, we have sufficient passive income without relying on work.
Common sense suggests that the bigger the value of our net asset base the more income we’ll have in the future.
Consider this, if an investor purchased a property for $400,000 today, it was worth $600,000 in fifteen (15) years time, but something else had grown at a greater rate to be worth $800,000, which property will make a greater contribution to the investor’s retirement?
The key to making a really good property investment decision is to avoid being ‘lured’ in to the features-and-benefits that property promoters refer to when trying to sell new property.
The sale price of a brand new property typically includes a 40% loading for taxes associated with the initial construction. When compared to the price of a comparable established property, the owner of a new property is behind the eight-ball from Day 1.
Remember, all brand new properties become subject to wear-and-tare anyway. And, unlike machinery, properties don’t have a ‘used by date’ – as properties change hands they are often renovated.
A property investor’s primary role is to make the best decision possible and this starts by including every single one of those 9.6 million existing properties in the decision making process. It then continues by reviewing the supply-and-demand investment fundamentals of the property markets of Australia’s 550 local government jurisdictions. That is the equivalent of PROPERTYOLOGY’s ‘stock exchange’.
If something is really important to do, surely it’s even more important to do it well. Propertyology is part of that important decision-making process.
For more on negative gearing, take a look at Negative Gearing – A Sustainable Future