Let’s take a long-term view on this. The average residential property investor understands that any welfare that may be available to them when they retire in 20 years or more is likely to be sparse indeed. They are also wary of shares,which they regard as “a bit of a punt”,and don’t trust superannuation because of the continual changes we are subjected to.
They are also probably smart enough to know that non-residential real estate is extremely high risk,with vacancies of two or more years not unusual. In their eyes,the only option left is good old residential real estate.
So let’s think about a hypothetical couple,Jack and Jill,both aged 40,each earning $100,000 a year. They buy a $600,000 investment property today with a mortgage of $500,000.
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The net income from the property – after rates,insurance,etc – will be around $23,000 a year,and they pay interest of around $30,000 a year.
In the first year they incur a loss of $7000. Depending on the property,there will be deductions for depreciation – these are called on-paper deductions because they don’t require an outlay of cash.
Let’s assume they are $8000 in the first year,but will reduce as time passes. Their total tax deduction is $15,000 which after 30 June when the rates change will give them a tax refund of $4500.