Property investing is a tried and true strategy of building wealth. What it takes, though, is an
amalgamation of effort and deep knowledge about the market. From saving for a deposit on a home,
buying it and then using it as a source for wealth, to setting up a portfolio that can provide you with
income in your retirement days, it requires awareness.
It’s always necessary to have the right property investment advice. For a high income earner, this is even
more crucial because you have unique advantages and challenges that are unlike those of low income
earners.
Unlike low income earners, you’ve got a great amount of income at your disposal. This suggests that you
should be able to build a deposit much faster. Although it’s not rare to find a high earner that doesn’t
save any of their income.
On the other hand, banks love high income earners. Lenders perceive them as credit worthy because of
their demonstrated ability to pay their loan duly. Banks are willing to lend you up to a loan-to- value ratio
of 95% as long your income is high and steady, which is not the case for low income earners.
Now to why you’re here:
Top Property Investment Tips for High Income Earners
Save For the Deposit
The fact is that a high earner can save more and much faster for a deposit, but as I have already
mentioned, many don’t.
There is no silver bullet in this business. One way or another, a deposit has to come from somewhere
and the fastest way is through your savings. High income earner can go so much harder and faster on
their savings than someone with an average income.
If you’re truly on a high income, 6 months can be enough to save up a substantial deposit. To get started, check the pockets of your lifestyle and determine how you spend your money. Then cut back.
- Do not spend too much money on unnecessary stuff. Dinners in fancy restaurants, fancy club memberships, and the like are usually for keeping up appearances and should be cut to a minimum.
- If you have more than two cars yet you only use one, the others should be sold.
- Enter an automatic savings program with your bank where a consistent amount of money is subtracted from your monthly income and added to your savings account.
Buy Off-the-Plan
When you buy off-the plan, you enter into a contract to purchase a property before its completion and
occupancy approval.
At such an income level, if you’re well-disciplined, you can afford to buy 2-3 properties in 12 months at
deposits of 40, 50 or 60k by buying off-the- plan. The trick is to get in early and stay longer to get the
benefits. There are significant financial benefits to this strategy.
- You can claim depreciation on your property for tax benefits.
- If you’re a first-time home buyer, you get to enjoy exemptions and concessions of stamp duty for properties purchased off-the- plan.
- You get a new property without paying at the market premium.
Invest for the Long Term
Property should be treated as a long term investment and not as a means for speedy short term capital
gains. Long term strategies that a high income earner can tap into are included below:
- Capital Growth
The increase in value of a property over an extended period of time is the essence of this strategy. It’s
simple, secure and straight forward and plays right into the strengths of high-income earners.
The key is to be able to withstand short-term pressures and market fluctuations. Pick the right property,
buy and hold onto it until such a time you deem is right to sell.
Many successful investors rely on capital growth for its certainty, and possibly to avoid the clamour in
the property market that happens in the short term. You can leverage your high income and buy a
property or properties that will net you notable capital gains.
How much your property appreciates in value depends on a number of factors, such as location, type, holding period and at what price you buy.
- Negative Gearing Strategy
Gearing stands for borrowing money to buy an asset, in this case, an investment property. It’s termed as
negative when the interest you are paying on the loan is more than the rental income from the property. As a result you are making a loss, which means that you can claim a tax reduction against your overall income. You are able to lower your tax bracket, and thus pay less tax.
You can make the most of this strategy if you hold out for a long time, say 10 years. It is suitable for
those who want to grow their property portfolio, while at the same time enjoying the tax benefits. The
costs of holding onto the investment property are less.
It’s also highly likely that the rental returns will eventually surpass your costs. That and the reduced tax payments plus maybe the capital gains can offset any losses that you incur initially in the negative gearing phase.
Property should be treated as a long term investment and not as a means for speedy short term capital gains.
A high income earner has the best chance of achieving a high net worth and retirement income faster. What you need is a comprehensive plan, the right wealth education, and a long term strategy, plus a tough stomach to withstand little pressure in the short term.
Your income and flexibility give you way more room to try for audacious goals. For example, if you earn
250k, you can set a goal to double your income in 10-15 years; 250k from your income, this is if you’re
still in the workforce, and 250k from rental receipts.
Depending on your motivation, you could move the target to 500k income or 1m income from your properties, which is totally achievable. In the first few years, you’ll have to build a massive property investment portfolio so as to reach a strong net asset in 10-12 years. To get to 500k income, you’ll need a net asset base of 10M dollars on a 5% return.
This is not a lot and it’s really just the tip of the iceberg. When you’re a high-earner, chances are high
that every cent has come the hard way. Grow it even more by diligently investing in the property
market.
To find out about where our in-house research believes are the top 9 suburbs for unit growth in 2017 and beyond, click the image below to download your free report.
