Discover some of the key factors to consider when borrowing to invest.
Australians are living longer and experiencing higher house-to-wage ratios.
It makes good sense to consider how you can achieve a comfortable long term future.
1. Define your goal
of us want extra money to create a better life for ourselves and our loved
ones. Setting specific goals and a time frame for achieving them will help you
build a realistic plan. The strategies you’d use to achieve each goal will
probably look quite different, too.
your goal is that, in 10 years time, you’ll be receiving $100,000 p.a. in
income from your investments so you can pay for
your kids’ education and then give them a home deposit later on.
Compounding is everything
growth means the more you invest early on, the greater your probable long-term
3. Embrace good debt
borrow money for things that will increase in value. This means buying or
improving an asset that can grow in capital value. You also need to be aware of
which investments are tax deductable and which aren’t.
high rates of interest to borrow for things that have no long-term value and no
tax deductions – like clothes, a car or holiday
4. Shares or
you borrow to buy property, it’s tangible, you get rental income, you’ve got
the potential of capital gain and it doesn’t have the volatility of shares.
liquid, the income can have franking credits to make it highly effective for
tax purposes and when weighing up what will suit you best, you have to factor
in set-up costs, regular fees and any costs associated with an investment
class, as well as loan interest rates and the capital gains tax you’ll pay down
all these factors into your calculations and Whittaker believes long term,
shares have greater potential capital gain than property.
5. Tips for borrowing to invest in shares
people already have a substantial investment in property – their home. Drawing
down on their mortgage to invest in diversified asset classes may be a practical
It can be
an effective way to build your equity so you have more money working for you
lenders, strongly recommend that you invest your loan in diversified funds. To
protect your investment, the approved vehicles are diversified assets like
managed funds, EFTs and separately managed accounts.
6. Tips for
borrowing to invest in property
majority of people buy property for capital gain rather than yield.
growth has been most prominent in capital cities, while the best yield tends to
be in regional areas, so you have to know your goal before deciding where to
issue to consider is that capital growth has been highest for houses rather
than units. Houses have performed better simply because there are more units
than houses being built. REA’s search data reveals people still want to live in
a big family home on a big block. People are willing to trade lifestyle to get
it. And that’s behind the price rises in regional cities like Hobart and the
Maintain a safety net
important to maintain a safety net – or not to over-leverage. Borrowing magnifies
whatever is going to happen.
important to remember that, whichever asset class you choose, over time it will
include dips as well as growth.
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Thursday, 28 November 2019