Alright, let’s get straight to it. Buying your first home? You might think it’s your golden ticket to financial security. But hold onto your hats, because the numbers have a different story to tell.
The Reality of Home Ownership:
So, you’re ready to dive into the world of home ownership in Australia. Here’s the lowdown:
- The deposit? You’re saving that with your hard-earned, after-tax dollars.
- Those costs to get the property? Yup, after-tax dollars again.
- Every mortgage payment? It’s coming straight out of your after-tax income.
- And all the other bits and bobs to keep the property in shape? You got it, after-tax dollars.
In short, there’s no tax break for just buying a place to live in.
But What About Investment Properties?
Now, here’s where things get interesting. The Aussie government likes it when folks invest and become less dependent on them later on. So, they’ve thrown in some perks for those who buy properties as investments.
Here’s the rundown:
- The costs you rack up for your investment property? Think mortgage interest, the odd repair here and there, and council or strata rates? You can claim all these as tax deductions.
- Now, when you do claim these costs, you don’t get the full amount back (life’s not that sweet), but you do get a neat refund based on your tax rate. If you’re earning more than $45,000 annually, this could be anywhere from 32.5% up to a whopping 45% – almost a third of all property expenses, and it could be as high as almost half of every dollar you pay.
Let’s paint a clearer picture. Say you buy an average Aussie property priced at $732,886. With a 6% interest rate, your yearly interest is about $43,973. On top of that, you’d be up for ongoing property costs (read rates, insurance, maintenance) of around $7,329 each year. So, you’re staring at an annual outgo of around $51,302. If this were an investment, and you rented it out, you’d probably get back roughly $29,315 a year. This means that as an investment the total cost to you total income ($29,315) less total costs ($51,302) is roughly $21,986.
The magic happens when you consider the tax deductions. Depending on your income bracket (let’s assume your tax rate is at least 32.5 per cent) you could receive $7145 back in tax. Not too shabby, right?
So, What’s the Final Word?
If you’re thinking of the same property as an investment versus a place to live, that $7,145 saved annually is pretty tempting. You could save it, invest it, or maybe even splurge a little (we won’t judge).
To buy or not to buy your dream home? It’s not just about following your heart; sometimes, it’s about following the numbers. Make sure they add up!
To discuss this in more detail talk to your local The Loans Suite mortgage broker. We can help you run the numbers, look into rates, discuss your strategy and even connect you with other advisors.