Unlock Property Wealth: Simple Steps to Financial Freedom in Australia

Do you want to achieve financial freedom and retire early? Do you want to build a passive income stream and enjoy a comfortable lifestyle? Do you want to leave a legacy for your family and future generations? If you answered yes to any of these questions, then property investing is one way to grow your wealth in Australia. 

In this blog post, I will share with you some tips and steps on how to grow wealth through property in Australia. Whether you are a beginner or an experienced investor, you will find some useful insights and guidance to help you take your property investment journey to the next level. 

Background 

The Australian residential property market has experienced remarkable growth, reaching new heights in value and ownership. As of September 2023, the number of residential dwellings in Australia has surged to 11,094,500. This expansion is reflected in the total value of the residential market, which climbed to a staggering $10,267.4 billion by the end of September 2023. This marks a consistent increase of $261.0 billion in June.  

Mortgage debt has also seen significant growth, with a total of $2.2 trillion in outstanding loans linked to these properties. Remarkably, housing accounts for 56% of Australian household wealth, underscoring its critical role in the nation’s financial landscape. 

Investment property ownership is also a significant trend. According to the latest data from the Australian Taxation Office (ATO), approximately 20% of Australia’s 11.4 million taxpayers, or 2,245,539 individuals, owned an investment property in the 2020-21 financial year. This data, released in June 2023, highlights the popularity of property investment among Australians. 

Some of the advantages of having an investment property in Australia are: 

1. Security and stability: Property is generally a more secure and stable investment vehicle compared to others, as it tends to be less impacted by market shifts and is more likely to yield fixed returns. 
2. Cash flow: An investment property can sometimes provide a steady stream of passive income, especially if the rental income is more than the monthly repayments and maintenance costs combined.  You can also use your rental income to pay off the loan and other expenses of the rental property.  However in the current high interest rate environment this would be less likely. 
3. Access to tax benefits: Residential rental property owners can enjoy tax deductions that allow them to maximise their tax return on investments. For instance, expenses incurred in the day-to-day management and maintenance of the rental property can be claimed against income, reducing your tax. You can also claim a tax deduction for any interest accrued on your regular repayments as an investment expense.  Some owners also have depreciation schedules which can also add further deductions.  
4. Long-term investment: Over time, the value of your investment property may go up, along with your rental income, especially if the property is in a high-yield area. This means your cash flow can also improve, leading to positive cash flow, which you can then use to expand your investment portfolio. 
5. Capital growth: Capital growth is a fundamental aspect of purchasing an investment property, where the goal is to achieve growth over the long term. When your property appreciates in value over the years, you stand to benefit from capital gains upon selling. This potential for profit is an integral part of the risk-reward equation faced by investors, who often take on borrowing and bear various holding costs. Understanding this dynamic is key to making informed investment decisions in the property market. 
6. Diversification: Property is a good asset class to diversify your portfolio because it has different characteristics and market behaviours than other investments. Property also offers the opportunity to leverage your equity and access tax benefits that are not available for other investments. You can diversify your property portfolio by buying properties in different states, cities, suburbs and sectors, or by investing in real estate investment trusts (REITs). 

Some of the disadvantages of having an investment property in Australia are: 

1. Lack of liquidity: Investing in property will not give you quick access to cash — unlike shares, it takes a longer time to sell a property and convert it into money. If an emergency happens and you need cash, you may not be able to immediately sell your property or get a good price for it. 
2. High entry cost: One of the biggest hurdles hindering many Australians from investing in property is the heavy financing required. You need a large amount of capital to buy a property, as well as to cover the stamp duty, legal fees, and other costs associated with the purchase. You also need to have a good credit history and a stable income to qualify for a loan. 
3. Maintenance and management: It is not a one-time thing where you only need to spend money upon purchase. There are ongoing costs and responsibilities you have to deal with, such as loan repayments, insurance, council rates, water rates, repairs, maintenance, renovations and tenant issues. You may also need to hire a property manager to handle the day-to-day operations of your rental property, which will incur additional fees. 
4. Risks and uncertainties: Property investment is not risk-free. There are many factors that can affect the performance and value of your property, such as market fluctuations, interest rate changes, vacancy rates, rental income, tenant behaviour, natural disasters, legal disputes, government policies and regulations. You may also face unexpected expenses or losses, such as damage to the property, bad tenants, vacancy periods, negative gearing, capital loss or reduced capital gain. 
5. Tax implications: While there are some tax benefits for property investors, such as deductions for expenses and depreciation, there are also tax liabilities that you need to be aware of. For example, you may have to pay capital gains tax when you sell your property, which is calculated based on the difference between the sale price and the purchase price. You may also have to pay land tax, which is a state-based tax levied on the total value of your land holdings. Furthermore, if you are a foreigner buying property in Australia, you may have to pay additional fees and taxes, such as the foreign resident capital gains withholding tax, the foreign investment review board application fee and the foreign land tax surcharge. 

However, not all property investors achieve their financial goals. Many struggle to expand their portfolio, while others make investments that underperform or depreciate. To succeed in property investment, you need a well-defined strategy, a strong foundation, and a long-term vision. 

Step 1: Set Your Goals and Plan Your Strategy 

The first step to growing wealth through property is to set your goals and plan your strategy. You need to have a clear idea of what you want to achieve, why you want to achieve it, and how you will achieve it. You also need to have a realistic and specific plan of action to make it happen. 

Your goals should be SMART, which stands for Specific, Measurable, Achievable, Relevant, and Time-bound. For example, instead of saying “I want to retire early”, you could say “I want to retire by the age of 50 with a portfolio of 10 properties worth $10 million and generating $300,000 of passive income per year”. This way, you have a clear target to aim for, and a way to measure your progress and success. 

Your strategy should be based on your current situation, your desired situation, and your risk profile. You need to assess your income, expenses, assets, liabilities, cash flow, borrowing capacity, and net worth. You also need to determine your risk tolerance, time horizon, and personal preference. Based on these factors, you can decide on the best strategy for you, such as buy and hold, renovate and flip, develop and sell, or a combination of these. 

Step 2: Educate Yourself and Build Your Team 

The second step to growing wealth through property is to educate yourself and build your team. You need to have the knowledge and skills to make informed and confident decisions. You also need to have the support and advice of experts and professionals to help you execute your strategy and avoid costly mistakes. 

To educate yourself, you need to read books, magazines, blogs, podcasts, and reports on property investment. You need to learn the fundamentals of property investment, such as market cycles, supply and demand, location, property types, finance, tax, and legal aspects. You also need to keep up to date with the latest trends, news, and data on the property market, both nationally and locally. 

To build your team, you need to find and work with reliable and reputable people who can help you achieve your goals. On your team `You need to have a good mortgage broker, financial planner, accountant, a lawyer, a property manager, a buyer’s agent, a property valuer, a building inspector, or a property mentor. These people can provide you with valuable services, such as finding the best loan, structuring your portfolio, protecting your assets, managing your properties, finding the best deals, appraising your properties, inspecting your properties, and guiding your journey. 

Step 3: Save and Invest Wisely and Diversify 

The third step to growing wealth through property is to save and invest wisely and diversify. You need to have the money, the mindset and the right risk appetite to invest in property. You also need to protect and grow your wealth by diversifying your portfolio across different markets, sectors, and asset classes. 

To save and invest wisely,  you need to have a budget and track your income and expenses to ensure you can afford to take on more debt.  You need to reduce or eliminate your bad debts, such as credit cards, personal loans, or car loans, this prepares you for the borrowing process. For borrowing money your income and cash flow is very important and needs to be strong.   

To diversify your portfolio, you need to spread your risk and exposure across different markets, sectors, and asset classes. You need to consider different states, regions, and suburbs that have different drivers of growth and demand. You need to consider different property types, such as houses or commercial properties, that have different characteristics and appeal.  

Step 4: Review and Refine Your Portfolio 

The fourth and final step to growing wealth through property is to review and refine your portfolio. You need to monitor and measure your performance and progress. You also need to adjust and improve your portfolio to maximise your returns and minimise your risks. 

To review your portfolio, you need to check your properties and finances regularly. You need to inspect your properties and ensure they are well maintained and tenanted. You need to review your rents and expenses and ensure they are in line with the market. You need to review your loans and interest rates and ensure they are competitive and optimal. You also need to review your cash flow and net worth and ensure they are growing and positive. 

To refine your portfolio, you may need to make changes and enhancements as needed. You may need to sell some properties that are underperforming or overvalued. You may need to utilise equity where properties have grown.  You may need to buy some properties that are undervalued or have strong potential. You may need to renovate some properties that are outdated or damaged. You may need to refinance some loans that are expensive or restrictive. You may also need to change your strategy or goals if your situation or circumstances change. 

Utilising Home Equity for a Strong Start  

One strategy often employed to kickstart your property investment journey is to leverage home equity. By using the equity in your current home as a deposit, you can secure your first investment property more easily.  

To embark on this route, you’ll need to assess your property’s current value and how much equity you’ve built over time. This can often be a substantial sum, serving as a launchpad for property investment without needing substantial cash savings.  

Conclusion 

Growing wealth through property in Australia is not easy, but it is possible and rewarding. By following these four steps, you can create a portfolio that can provide you with financial freedom and security, as well as personal satisfaction and fulfillment. Remember, property investment is a long-term game, and it requires patience, persistence, and discipline. But if you stick to your plan and keep learning and improving, you will eventually achieve your property investment dream. 

Ready to Begin Your Wealth-Building Journey? 

Our dedicated team is eager to assist you in taking your first steps toward financial success through property investment. With access to a network of experienced professionals, we offer guidance at every stage. Ready to turn your property investment dreams into reality? Book our free introductory session now to discover how we can tailor our expertise to your unique financial goals and embark on a journey towards wealth together.

We hope you enjoyed reading this blog post and found it useful. If you have any questions, comments, or feedback, we would love to hear from you and learn from you.  

7Wealth Pty Ltd ABN 44609210246 is a Corporate Authorised Representatives and is authorised through Cobalt Advisers Pty Ltd ABN 64 628 654 099 who is an Australian Financial Services Licensee 512550. 7Wealth Pty Ltd is a Credit Representative of Australian Finance Group Ltd ABN 11 066 385 822 (AFG) Australian Credit Licence 389087. 
This blog contains information that is general in nature. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Cobalt Advisers Pty Ltd nor their directors, employees or authorised representatives, do not give any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document.