Highlights
- Negative gearing is the government's policy regarding incentives or subsidies should your mortgage cost more than your earnings.
- Equity is the increase of your property's value.
- When you invest in property, what you are investing in is time.
'May PERAan' is SBS Filipino's new podcast series which features financial experts seeking to answer the most common questions about money and finances.
"Buying a house entails big lifestyle changes," financial expert Michelle Baltazar shares, joking, "You won't be meeting up with friends for lunch for a while when you buy a house."
A house brings with it massive financial responsibilities; but what if you already have one but want to invest in another property? What are the things you need to consider then?
Before investing in property, keep the following in mind:
1. Negative gearing
"Knowing what negative gearing is important. The Australian government wants to help those belonging from the lower and middle class to own their own homes. There are subsidies and incentives to buy a house."
Michelle shares the concrete example of someone earning 60,000-80,000 AUD a year.
"Tax is taken from your salary. Remember that tax is big in Australia - it can be anywhere between 15-50%.
"When you buy a house, you have a mortgage. Every month, you need to make repayments. Let's say you have an investment property which you rent out for 100 AUD a week or 400 a month but you need to pay 600 a month, you lose out by 200 AUD a month. This is when the government comes in - so instead of paying 20,000 AUD in taxes, you only pay 10,000 AUD."
Michelle shares though to always be aware that government rules do change.
2. Equity
Is there such a thing as investing too early?
Michelle shares that to answer this question, it's important to know what equity is.
"The value of property goes up in time. Let's say I brought property for 200,000 AUD and it now values at 400,000 AUD, I then have 200,000 AUD in equity.
"If you've only owned your house for a year, I don't think it's a good idea to borrow for another property now just because you're still getting used to paying a big debt and the equity on your current property is minimal."
3. Investing in property means investing in time.
Owning a home is one of - if not - the biggest financial decision in your life.
"There's no absolute good time to buy property. What you are doing is investing in time.
"What you do need to consider is if you have a stable job and have adequate savings that will last you for three months just in case anything happens."
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Disclaimer: This article is for general information only. For specific financial advice, you should consider seeking independent legal, financial, taxation or other advice to check how the information here relates to your unique circumstances.
