History has proven that one of the best ways of creating wealth in Australia is through building a property portfolio.
KR Peters Director Peter Nicolls has seen many of his clients slowly and methodically build wealth through the buying and selling of property over his 45 year real estate career.
He says most people purchase their family home and never attempt to buy a second property.
However, for those who do take the plunge it often pays off handsomely, creating a nest egg to fund a comfortable retirement or pass on to the next generation.
"Traditionally people have bought a second property to negative gear," Mr Nicolls explained.
Negative gearing allows any net rental loss a landlord incurs during a financial year to be offset against other income, reducing their taxable income.
Mr Nicolls said to grow a property portfolio it is important to understand 3 key fundamentals.
The first is leverage.
"This entails obtaining the maximum valuation on your family home," Mr Nicolls explained.
"You need to know your asset value as this amount will be used as the deposit for your next property purchase."
The second is buying power.
"It is important to know your borrowing capacity. Lenders will require your financials which will include an assets and liabilities statement, letter of income, living expenses and any rental income," he explained.
The third is buying the right type of property.
"This is the hardest part of the equation," Mr Nicolls said.
"A dual occupancy or 3 unit site, in my opinion, is the best type of property. This type of development enables you to sell a property, reduce your debt levels and provide a positive cash flow.
"The equity that is in the project enables you to repeat the exercise with the next project and so on."
He listed the numerous benefits of this type of development as including lower stamp duty on acquisition, high tax depreciation on building and fixtures, better tenants, land tax assistance with build-to-rent homes and good capital appreciation.
He said potential investors must also remember that when a new home is held for more than five years the 10% GST pay back is not required.
Creating wealth through property is a long game and Mr Nicolls cautioned investors to be patient.
"With growing a property portfolio it is preferable to not sell the property because you increase your tax liability based on the profit you generate.
"However, it is a catch-22 situation as you need the banks to support your funding with the next project.
"There are definite gains to be made through the shrewd acquisition of a property portfolio. At KR Peters the team is focused on building wealth for our clients. Come in and have a chat about how you can get started."