An investment property that earns maximum rental income is a good financial playground during retirement.
This allows you to shift the extra money towards paying off loans on your other properties, or more ideally, putting some of it into your new lifestyle.
However, when your investment property generates rental income that exceeds operating costs, the property will be qualified as "positively oriented", which means that it will be subject to tax.
In saying this, it is important to meet with a qualified and professional tax advisor to calculate exactly how much cash flow into a property you can take to keep it.
“Income tax is payable on taxable net rent calculated by taking rental income less allowable rent deductions. This is in addition to the taxable income of the taxpayer and the income tax is calculated at the usual individual rates, ”says Janelle Bartlett, partner at Chan & Naylor.
“The main component of loan repayment reduces net cash flow but does not reduce taxable net rent,” she adds.
On the flip side, capital assets and depreciation allowances often produce negative net rent, which Bartlett says "has no impact on cash flow, but can provide tax deductions. large, reducing the net taxable rent and tax payable. "
"This negative rent or negative debt can be used to offset other income and lower the taxpayer's overall tax bill," Bartlett explains.
What does the retirement age mean?
This is a milestone that deserves countless champagne showers – and a prospect that will result in a lifestyle that varies for each individual.
For Tom Clark, Founder and CEO of EquiKey, retirement age means "the age at which you are physically and / or emotionally ready to stop spending the majority of your time to work a certain number of hours in exchange for payment ”.
Sounds loyal to the majority, right?
"It doesn't necessarily mean you have to stop working or making money, quite the opposite," says Clark. “Ideally, you want to get to a point where minimum input equals maximum output – input being your time and output being money.”
However, to get to this point and achieve financial freedom as well, it takes a change of mind and proper planning, says the director.
“The old adage 'nobody gets rich by working nine to five', in my experience, still rings true,” says Clark.
"The sooner you start [mentally and financially planning for retirement] the sooner you will be able to enjoy the benefits associated with retirement, that is, having more time and money to do the things you want to do . "
Clark is the head of EquiKey, which offers homeowners over 55 a "debt-free alternative to a reverse mortgage."
"By selling a percentage of their home equity to an EquiKey investor, homeowners can realize the value of that equity right now and start using it wisely, whatever it is." Whether it is renovating the house to prepare for the future, paying off debts or just having that little bit of extra cash on a weekly basis which can make a huge difference in terms of quality of life and peace of mind, ”says Clark.
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