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The Local Investor

December 2nd, 2014

The Local Investor

It seems like affordable housing is becoming more and more scarce in some parts of Melbourne. The real estate pages advertise houses that are close to $1 m in suburbs where the average house was around $200,000 just over a decade ago. Prospective buyers who attend home auctions are outbidded by foreign investors. It is bad enough that I read somewhere that Generation Y is abandoning the dream of owning a house and choosing to travel instead. More and more children are living with their parents till their 30’s causing some parents to worry that they have to provide for these 30-something year old “teenagers.” On one hand, it is great that Australia was not affected to the extent of other countries by the 2007-2008 global financial crisis. On the other hand however, it is not great for home buyers that Australian home prices have soared to an unaffordable level. There are some who say that foreign investors are buying into selected suburbs in Melbourne with the hope of using these investment properties as a fast track to migration here. Then there are some who think that these foreign investors are just diversifying their investment portfolio by investing overseas much like how we would invest in overseas stocks and shares. The only difference is that these foreign investors are wealthier and are willing to pay any price for the house or location they want. Whatever the reason, Jack is a local resident who doesn’t believe in selling local residential property to foreigners who live overseas. So he did what many people cannot afford to do: He starting buying up these properties himself. He used the funds from his redundancy package to purchase his first investment property. Then he used the equity from that investment property to purchase his next property and so on. So far he owns three investment properties. 

Jack was a smart investor who knew how to use his investment properties to pay less tax. What he did was to hire a qualified quantity surveyor to prepare a tax depreciation schedule or tax depreciation report on the properties for him. As a tax payer, he was able to claim the depreciation of his investment properties (i.e. wear and tear of plant and equipment such as floor coverings, dishwashers, ovens, blinds; building such as brickwork and concrete; and renovations) against his taxable income. In other words, his taxable income is reduced by the amount claimed in his depreciation schedule; thus letting him keep more of his income.

Jack first set out to prevent foreign ownership of his neighbourhood and ended up becoming a property investor. Now that the investment bug has bit him and he has experienced the benefit of receiving rental income, he has set his sights on buying more investment properties and maybe cutting back his work hours, so that he can focus on property investment.