After 8 months of electioneering, we are finally going to get a chance to move on without politicians being front and centre of the media. With the current trends in the Melbourne auction scene, the only thing the announcement will do is slow down a few vendors. Currently the clearance rate sits well over 70% for the year and last weekend saw a clearance rate of 74% on 515 properties. For the depths of winter, this is a very good result for vendors and investors.
Over the next few months, either our government will change or it will not. That will make little difference to the value of properties in Melbourne. It is now almost certain that the Reserve Bank will lower interest rates tomorrow and assuming the banks pass on at least most of the cut, then we will see investors very happy to collect rent and get some capital growth rather than have money deposited at bank at about 3.5%.
When you invest money in direct property, you get the rental return, you get tax incentives and if you choose correctly, you get capital growth. The top third of suburbs in Melbourne have average capital growth rates of 8% – 10% p.a. over the last 30 years. This includes recessions, downturns, booms and doldrums periods like the last 2 years.
Whilst rental returns are not growing all that quickly, if you add yield to capital growth and take into account the depreciation and tax offsets available via negative gearing, then it is fairly obvious that you can make more money in direct property than putting your money in the bank. You do not need to have the full purchase price of the property sitting in cash, although many people with Self-Managed Super funds do, and they are buying property rapidly. (This is a whole different scenario that you should talk through with your financial advisor) If you have some deposit and or equity in an existing home, you can borrow money and in simple terms get a tax deduction for out of pocket expenses related to the running of the investment property.
An average person earning approximately $80,000p.a. and paying normal tax could borrow the full purchase price of a $500,000 home, receive an average rent of about $400 per week and after claiming a tax deduction for depreciation and net loss of income they would need about $50 per week to fund this. If you have purchased well, then the capital growth over an average decade (9% p.a.)would equal approximately $683,000. The property would be worth nearly $1.2M.
Please note, this is not meant to be specific investment advice as everyone’s personal financial situation is different. This is solely for illustrative purposes.
However, if you are considering an investment property purchase, please feel free to call us for a no obligation meeting. We buy property all over Melbourne and can find the right property to fit into your portfolio.
Ian James
Director
JPP Buyer Advocates
