Just in case you haven’t heard me say it a million times before, my property investment strategy is simple…
BUY AND HOLD.
Let me make that as clear as possible…
Buy – whenever you can
Hold – as long as you can
There are many reasons to hold long term, though here is a big one…
Capital Gains Tax.
What are “Capital Gains”?
Capital gains (in very basic terms) is the amount of money an asset has increased in value from the time it was purchased, to the time it was sold.
For example, if you purchased a Bondi apartment in 2001 for $500k and sold it in 2021 for $1.5m, the capital gains would be $1m.
Purchase price: $500,000
Sale price: $1,500,000
Profit (capital gains): $1,000,000
What is “Capital Gains Tax”?
CGT is a tax introduced in Australia in 1985 and imposed on the sale of assets (unless specifically exempt) acquired since that time.
Investment property is classified as an asset, so if you sell an investment property (different rules apply for primary places of residence, so always be sure to check with your accountant), the ATO will come sniffing around for a massive piece of the pie.
Using the example above, you can expect a knock at the door from the ATO with their hand out requesting that tax is paid on part or all of the $1,000,000.
This is where it gets complicated and you must have the help of an accountant. There are many different rules that apply on the sale of the property for individuals, super, companies, trusts, foreign residents and how long you actually owned (or lived in) the asset for.
One thing is for sure though… it’s not going to be pretty.
How to NEVER Pay Capital Gains Tax
Simple. Think outside the box. CGT is a tax on the “SALE” of assets.
So if you never sell, you never have to pay the CGT.
“But Chris”, I hear you say, “how can I make any money from property if I never sell and realise my profit?”
Even if you never sell a property, the property itself increases in value. The increase in value is referred to as “equity”.
Using the example above, if you initially took a loan for 100% of the purchase price of the $500k Bondi apartment and had kept an interest only loan, in 2021, the loan would still be $500k.
The difference now is that the property is worth $1.5m, so you have built $1m worth of equity.
Banks (and other lenders) recognise this, so they may be now willing to loan you additional money against that equity (again, talk to your accountant and mortgage broker as every circumstance is different).
How can we help you?
If you are not sure of how much equity you hold in your property, or haven’t had it valued for over a year, book a chat with Luis and we can help you out.
If you are wondering how you can leverage that equity to purchase more property, let’s chat.
If you are confused by all this and are wondering how it relates to your circumstances, Luis is always happy to have a free confidential chat and point you in the right direction.
Remember… think like a contrarian.
Book a free, confidential mini strategy session with our property expert Luis Lequerica: https://calendly.com/yourempire/15min
Or simply, get in touch with us today on our contact page to discuss your requirements.