Have you ever considered purchasing a home to rent out?
Owning a home is a widely-held aspiration among Australians, not least of which because of the long-term financial benefits. However, in the wake of escalating prices, people are starting to consider other options to get a foot up on the property ladder.
In fact, figures from CoreLogic RP Data reveal that the total value of residential real estate in Australia is now in excess of $6trillion.
In light of this, after scouring through houses for sale and various home loans from your mortgage broker, you’re perhaps starting to think that rental properties make more financial sense. You’re not alone, as data from the Australian Bureau of Statistics shows that throughout 2015, the monthly value of rental property purchases has been nearing $14billion.
1. Rental properties produce a flow of cash
Once you’ve found tenants for your rental property, you will gain a secondary income. Most of the time (depending on the quality of your tenants) this will mean a constant stream of money that you can use to cover your mortgage, maintenance and expenses.
2. The right property can provide a positive cash flow
You have a positive cash flow when the rent payments from your tenants exceeds the expenses of owning your property. Essentially, once all your rental expenses and bills are paid it’s the money left over. Not all rental properties produce a positive cash flow, so it’s important you find the right one!
You can use these profits whatever way you like, including some new designer clothes, a sports car or a surf board. However, the Australian Investments and Securities Commission recommends using them to pay down your mortgage faster.
The sooner your mortgage is paid off, the sooner you can reach financial freedom.
3. Other people’s money pays off your mortgage
It’s a great feeling knowing that someone else is paying off your home loan. Provided your rental yield is sufficient, you can sit back and relax knowing there is no extra money coming from your pocket to pay your lender, as the weekly payments from your tenants take care of it.
All it takes is keeping it rented out for 15 – 20 years and then the home is yours. Simple!
4. Improvements can build its value…
There are sometimes swings in the market, which could mean you may have to decrease your rental yield from time to time to continue attracting tenants.
It’s a great idea to make some renovations to your property, as the right changes can increase your homes value and ensure that you’re protected from any rough spots in the market.
Thus, it makes sense to purchase homes for sale that have the potential to significantly increase in equity given smart and cost-effective improvements. An additional bedroom or bathroom, updated kitchen or a new deck can all prove to be clever investments
5. …And its rental yield
Given your renovations are likely to improve the quality of living, it’s not unreasonable to raise the weekly rent.
The beauty of this, is that not only will you be increasing your weekly profits, but also your homes equity (again) as it becomes a more attractive option to other investors.
6. Rental properties have tax benefits
There are a number of tax benefits for Australians who invest in rental properties, designed to make the market more accessible.
According to the Australian Taxation Office, some of the expenses you can claim on include:
• Council rates
• Legal expenses
• Repairs and maintenance
• Bank charges
• Property agent fees and commissions
If you own a rental property or are in the market for one, you should consider a property manager from a real estate agency. Not only can they take care of every aspect of your rental property, but they can also offer unique insights on rental properties in the market and advise you on any decisions.