Property and Loans

Property Valuation

Present value of future rent in perpetuity

present_value is value today of the property that can generate rent

present_value = annual_net_rent / (rate - growth)

Property Strategies

Negative Gearing

1. Buy investment property.
2. Take out maximum investment loan possible as interest-only loan.
3. Make sure your investment property reduces taxable income
   • Assessable income: Rent
   • Allowable deductions: Investment loan interest, agent fees, maintenance …
   • Taxable income = Assessable income less allowable deduction
4. Offset ‘loss’ against salary income to reduce income tax.
5. Hold property for long-term to achieve gain in asset value.

Positive Cash Flow

1. Build up a portfolio of investment properties.
2. Focus on properties that generate good rental income.
   • These may be lower valued properties in areas of high rental demand.
3. Make sure portfolio generates positive cash flow.
   • Cash inflow: Rent
   • Cash outflows: Investment loan interest, agent fees, maintenance
4. Stop working and enjoy ‘passive income’ (financial independence)