With Australia’s official cash rate hovering around historical lows for some time now, long-term investors are looking for ways to make the most of the low interest environment. Here are five ways to put the low cash rate to good use.
1. Become positively geared.
If you’re an investor you’ll understand that property can either be geared negatively or positively. Negative gearing is when the cost of holding an investment is greater than the income, while positive gearing is when the income is greater than the cost.
While it’s standard practice for investments to be negatively geared in the early years, that doesn’t mean it’s always the ideal outcome. With most taxpayers sitting on a marginal rate, many investors only receive back approximately 33% on their initial outlay through taxable returns. If this is the case for you, you may be better off taking the opportunity to pay down your loan as quickly as possible while minimising out-of-pocket expenses.
2. Contribute more to your superannuation.
Investors can claim deductions on superannuation contributions as a tax deduction. These ‘concessional contributions’ can include:
- Salary sacrifice contributions that you make,
- compulsory super guarantee contributions made by your employer, and
- Any personal contributions you notify your fund you intend to claim as an income tax deduction.
3. Make some home improvements.
Lower interest rates and mortgage repayments may also provide the perfect opportunity to divert some excess cash towards upgrading your investment. This could be spent on repairs or improvements to modernise your property. This adds both immediate benefits to the appeal of your property as well as a long term benefit for any sale in the future.
4. Invest in more properties.
If you dream of one day owning an empire of investment properties then now is the time to take the leap. A low interest environment represents an opportunity to springboard those ambitions. Average
growth for a two-bedroom dwelling in the Greater Sydney area has been constantly on the rise. Rental demand is constantly voicing a demand for more properties and combined with the low interest environment means now is an ideal time to grow your property portfolio.
5. Set up an offset account.
This is probably the most conservative suggestion but it’s also a great way to take advantage of the low interest even if you’re not sure what to do right now. A mortgage offset account is a transaction account that’s linked to your investment loan. The money accumulated in your transaction account is offset against your outstanding balance, which reduces the interest on your payable loan. For example, $10,000 in an offset account that’s attached to a loan of $200,000 means you’ll only be charged interest on $190,000.
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