How Investing in Property Creates Passive Income

Leonie Fitzgerald is an advocate for financial freedom and a savvy property investor with an unquenchable thirst for self-education and knowledge that empowers and inspires.  A finalist in the Women of Business Awards of Australia, her path to prosperity hasn’t always been an easy one, resulting in her having a desire and determination to help others pursue wealth and create an amazing lifestyle.

Many Australians are looking at ways to secure their financial future, get themselves set up and perhaps retire a little early – creating the freedom to have choices in life by having passive income flowing in each week in their retirement and before. It’s important to formulate a sound investment strategy to create this for yourself, and property is a low-risk way to maximise your returns. 

I’m sure you’ve heard the saying ‘safe as houses’ – property is often seen as less risky than other investments. It’s an extremely flexible investment, you have 100% control, it’s relatively easy to get finance and it’s remarkably simple to get started.

Why invest in property

Here’s some other reasons why property is considered a great investment:

√ Generate a passive income – The income coming from an investment property is greater than the expenses resulting in a surplus of cash at the end of the week. 

Capital Growth – A property increases in value and the growth results in a profit.

 Depreciation – The majority of people understand that when you rent out an investment property you can claim a deduction for the outgoings such as water, council rates and agent management fees. However, numerous investors forget about claiming depreciation (the decline in value of property assets over a period of time). The ATO sets out rates of different items, such as floor coverings, air conditioners and kitchen appliances that can be depreciated, along with the building cost.

√ Save you thousands of dollars in tax – The ‘negative gearing’ tax laws allow you to offset any shortfall between the rent that you collect from your investment property and the expenses that you occur against your other assessable income.

Below is an example of a negatively geared property which has positive cash flow after tax benefits.

Rent: $23,400
Rates, management fees, insurance etc: -$4,500
Interest: -$23,500
Cash flow before tax:-$4,600
Capital Works/Special Building write-off:-$5,600
Tax Loss:-$12,700
Tax Refund at 49% tax rate: $6,223
Positive cash flow after tax: $1,623

To provide the highest levels of return, there are dozens of factors which can influence the gains on a property (and its appeal to prospective tenants too).

How Wealthy People Become Wealthy

This is how wealthy people become wealthy. They use a small amount of money to obtain a mortgage on a property (i.e. they acquire an asset). Then they let that asset create value for them (i.e. they rent it out). Then they sit back, relax and wait for the money to roll in

Then they do it all again and they repeat this again and again and again until the amount of money coming in each month is sufficient to meet more than their needs. 

You get to choose how much income you would like simply by acquiring another asset. 

One of my top tips, other than purchasing a property surrounded by good infrastructure, schools, shopping facilities and with jobs in the local area is also to ensure that your property is leased efficiently and for the highest possible return. Good tenants are a precious commodity – they pay their rent on time, they treat the property as if it were their own home and they stay for a longer period of time. 

Is it time you dipped your toe in the property pool?

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