Buying a House as an Investment – in Australia

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House investment

How to Make More Money and Get Tax Relief via Home Ownership

In Australia, the home is a growth asset and can be used to make more investments. Plus, owning a home is tax effective.

Owning a home has always been considered the great Australian dream. For the uninitiated or prospective first home buyers, it’s important to know that buying a house is an investment too.

Here’s a quick look at how home ownership can create more wealth and help home owners reap some tax benefits.

A Residential Property Is a Growth Asset

Buying a residential property is a good investment because the home is a growth asset. The longer a home owner keeps his property, the more it will grow in value.

That’s why many home owners find themselves having properties that are double their prices 10 years after they first purchased their houses.

That’s based on a conservative growth rate of 7.5%. In many Australian suburbs, the rate is approximately 11.7% a year, according to a report prepared by ABC.net.au.

Home prices, Feb 2017

Those who buy houses in high capital growth areas can even see the value of their homes increasing in shorter periods of time. To further boost the house price, a home owner can renovate and extend the property.

Using the Home to Make More Investments

Banks and lenders are more willing to give loans to property owners who borrow against the value of their home. By doing this, these people will be able to buy another house or an investment property or shares.

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Once there is equity, that is the value of the house minus what is owed to the lender, it is also easier to sell the current house in order to buy a bigger, nicer house in a better or high capital growth area. This is important as the family grows in size.

Buying and Owning a Home is Tax Effective

In Australia, the family home is a tax effective investment. That’s because the profits that a home owner makes when he sells the house he’s been living in is exempted from capital gains tax. He can then use the money to buy another bigger and higher value house.

In fact, he can keep doing that once every few years and continue to upgrade the family home until he retires, sells off the big house, buys a smaller house and lives off the change without paying any tax on the profits!

For retirees, home ownership also brings another important form of tax relief. The family home is not counted as an asset when it comes to being tested or assessed for pension eligibility.

So they enjoy the comfort of their home plus retirement benefits or concessions like lower medical bills, utility bills and public transport fares. Retirees with no homes of their own not only have to pay rent for accommodation, they also get taxed if their money is invested in shares, fixed interests and investment properties as these are defined as assets for pension eligibility tests.

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A home is more than just a place to live in. Buying and owning a house is a long-term tax effective investment plan. It can help home owners make more money since a home is a growth asset that can be used to make even more investments.

Home owners who have retired also benefit as the Australian retirement system does not include the family home in its assets test when determining retirees’ pension eligibility.

Derkley, Karin. Buying & Selling Your Home for Dummies. Queensland: Wiley Publishing Australia

Thomson, Jimmy. The Ultimate Guide to Buying & Renting Houses & Apartments. New South Wales: Fairfax Books


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