Housing or lack of it, is a hot topic at present with much commentary on the lack of rental accommodation in the main centres.
Recently we saw an article that mentioned that up to 50% of homes are rented rather than owned. This reflects the declining rates of home ownership and the growing disparity between rich and poor, highlighting the fact that the market is changing. This means more and more people are either not able to or don’t wish to own residential property with the incumbent debt and other costs of ownership.
A major reason for home ownership is the security that it provides and the chance to accumulate equity and savings over the long term. Most rental tenancy agreements are short term, maybe twelve months at most, and so provide little security for the tenant. This is in stark contrast to the rental situation in many overseas countries where tenancy can often be for life.
With such a high percentage of people renting rather than owning property – and likely to remain that way, perhaps it’s time to reconsider our tenancy arrangements?
This then raises the real issue. With the growth in rents not matching the increase in property values and costs in recent years, many residential investors are barely breaking even on rental returns and so are only in the market for capital gain. When the capital gains are sufficient they bail out of the market often at the expense of their tenants who are forced to look elsewhere for accommodation. Whilst the current government has introduced a “bright line” test which penalizes those who buy and sell rental property within two years, many of those who have bailed out of the market are really just short term speculators.
So, residential property investment should really be a long term strategy over a minimum of 15-20 years, over which time the focus should be on the repayment of debt so that at retirement the owner can enjoy real passive income.
There are a number of associated strategies that can be employed as part of a wealth accumulation plan and we at Thompson McNeill are happy to advise on.
If you are considering property investment as a way of creating wealth or retirement income, talk to us first – we can help you formulate a plan and raise the required finance!
Call us on (03) 281 8605 or email us at email@example.com
It might be the best decision you ever made!!
September 06, 2017
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