Recently I have been talking with several clients about what I call the Dream Home Strategy. Many people purchase Australian residential property, often on the basis of advice from their accountant. This is too often tax driven only. So they will be advised to purchase a new property (for the depreciation benefits), and will often buy close to where they live. The well advised may also set up their loans interest only, as this maximises the taxation benefits. What’s the problem!? Well, here’s a few:
1) Many of the older homes in Australia are built in the most desirable parts of the city. New homes are (most often) built on the edge or at least not in the most desirable; central or coastal locations.
2) Often the tax benefit is ‘built into’ the price that one pays for a new property. So you can often pick up older properties much cheaper than their new equivalents – often more than any tax savings you may have gotten. It is competed away.
3) Older properties are often more generous. They often have higher ceilings. And we have all seen how small some bedrooms are in newer developments.
4) You can often still get some deprecation benefits from an older property. A Quantity Surveyor can often assist in getting you a Depreciation Schedule, and this could cover air conditioning, hot water systems and the like. This can be especially valuable if your property has been refitted over the years.
I cannot predict the future of the Australian housing market. But I do think, when one is purchasing a property, to have a second string to your strategy. Rather than just buying a standard house around the corner (and thus losing any diversification benefits), think of a second reason for buying it. One example is what I call The Dream Home Strategy.
Many people are buying investment properties with an eye on their retirement. Why not purchase the investment property where you would like to retire? – your Dream Home. If you buy it now, and then rent it out, you will get all the same benefits than if you bought some boring place around the corner. Once your kids have moved out, you can then move in.
Where’s your dream home? What’s it look like? Let us know in the comments section.
Of course seek taxation advice from an accountant and don’t do anything without talking to a financial planner, as this is general advice only.