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 recent cash rate cuts to good use.
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, to gain tax benefits, that doesn’t mean it’s always the ideal outcome. With most taxpayers sitting on a marginal rate of 32.5%, many investors only receive back $325 out of a $1000 outlay. 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.
In the 2013/14 financial year, investors can claim up to $25,000 of superannuation contributions as a tax deduction. These ‘concessional contributions’ can include:
With concessional contributions taxed at a rate of 15% when paid into your super fund, this represents a significant tax discount. Taking advantage of lower loan repayments and diverting some of your excess funds into you superannuation can be a great investment strategy.
Lower interest rates and mortgage repayments 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 a rental now, as well as long-term benefits for any sale in the future.
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 increased by 77% in the decade since December 2002. This rental demand combined with the low interest environment means now is an ideal time to grow your property portfolio.
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.
If you’re looking to purchase a property – do not forget we offer a free contract review prior to purchase. For mortgage advice or to refinance to maximise your savings – call our Mortgage Options consultant.