Why Investment Properties Make Sense for Bricklayers
As a bricklayer, you understand the value of building something solid that lasts. The same principle applies to building wealth through property investment. When you're buying an investment property, you're not just acquiring bricks and mortar – you're accessing significant tax benefits that can help boost your financial position.
Investment properties offer unique tax advantages that aren't available with your family home. From negative gearing benefits to depreciation claims, understanding these deductions can make a substantial difference to your tax position each year.
Understanding Negative Gearing Benefits
Negative gearing is one of the most talked-about investment property tax benefits in Australia. This occurs when your rental property expenses exceed the rental income you receive. The loss can then be offset against your other income, including your bricklaying earnings, potentially reducing your overall tax liability.
For example, if your rental property costs you $15,000 per year after rental income, and you're in the 32.5% tax bracket, you could save around $4,875 in tax. This makes your actual out-of-pocket cost closer to $10,125.
Common deductible expenses include:
• Interest rate payments on your rental property loan
• Property management fees
• Council rates and land tax
• Building and contents insurance
• Repairs and maintenance costs
• Depreciation on fixtures and fittings
Choosing the Right Property Type for Tax Benefits
The type of investment property you choose can impact your available tax deductions. Whether you're considering a town house, apartment, or stand alone dwelling, each comes with different depreciation opportunities.
Newer properties typically offer higher depreciation deductions because fixtures, fittings, and building components can be claimed over time. An apartment might offer different depreciation schedules compared to a stand alone dwelling, so it's worth considering this when you research property options.
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Financing Your Investment Property Purchase
When applying for an investment loan, lenders will assess your borrowing capacity differently than they would for a home loan. They'll consider the potential rental yield from your investment property as part of your income, though typically at around 70-80% of the expected rental income.
Your investment loan application will require:
• Recent bank statements showing your income patterns
• Evidence of your deposit (usually 10-20% of the property value)
• Details about the property you're purchasing
• Information about your existing debts and expenses
The loan to value ratio (LVR) for investment properties is often more conservative than owner-occupied homes. If your LVR exceeds 80%, you'll likely need to pay lenders mortgage insurance (LMI), which can add to your upfront costs but is also tax-deductible when spread over the life of the loan.
Managing Interest Rates and Loan Features
When selecting your rental property loan, you'll need to choose between variable interest rate and fixed interest rate options. Many investors prefer variable rates for investment properties because they can take advantage of interest rate discounts and typically offer more flexible features.
Some useful investment loan options to consider include:
• Interest-only repayments to maximise cash flow
• Offset accounts linked to your loan
• Redraw facilities for accessing extra payments
• The ability to split portions between variable and fixed rates
Calculating investment loan repayments accurately is crucial for understanding your cash flow position and potential tax benefits. Remember that all interest payments on your investment loan are tax-deductible.
Depreciation and Capital Works Deductions
Depreciation is often the most overlooked tax benefit of property investment. You can claim depreciation on two categories:
Division 40 (Building Depreciation): This applies to the building structure itself and is claimed at 2.5% per year for properties built after 1987. Only the original owner can claim building depreciation.
Division 43 (Plant and Equipment): This covers removable items like carpets, blinds, hot water systems, and kitchen appliances. These items depreciate at different rates depending on their expected lifespan.
For bricklayers, understanding building depreciation can be particularly valuable since you work with these materials daily. Your industry knowledge can help you make informed decisions about properties with strong depreciation potential.
Planning Your Property Investment Strategy
Developing a solid property investment strategy involves more than just finding a property with good rental yield. Consider how each investment property fits into your broader financial goals and tax planning.
Many successful property investors start with their first investment property and gradually build an investment property portfolio over time. Each property should complement your overall strategy and provide tax benefits that align with your income and tax situation.
Stamp duty is another significant cost to factor in when buying a rental property. While not ongoing like other expenses, it represents a substantial upfront cost that affects your initial investment calculation.
Getting Professional Support
The application process for investment loans can be more complex than standard home loans. Working with specialists who understand both property investment and the trades industry can help you access investment loan options from banks and lenders across Australia while ensuring you structure everything to maximise your tax benefits.
At Tradie Home Loans, we understand that bricklayers have unique income patterns and financial situations. Whether you're looking at buying your first investment property or expanding your property portfolio, we can help you find the right loan structure.
Our streamlined application process is designed to work around your schedule, and we can help you understand how your borrowing capacity applies to investment lending. We also specialise in home loans for bricklayers, so we understand your industry's specific requirements.
Building wealth through property investment requires the right foundation, just like any construction project. With proper planning and the right loan structure, you can maximise the tax benefits available while building a solid investment property portfolio that works for your long-term financial goals.
Call one of our team or book an appointment at a time that works for you to discuss how investment property tax benefits can work for your situation.
