Real Estate and Land value - Your home is your biggest investment

My Uncle John Fitzgerald wrote the book “7 Steps to Wealth” in 1998, this book has become the bible in property investment.  However, the biggest investment that most Australians have is their home.  There are a couple of similarities between what John wrote in his book and what he subsequently taught me over the next 10 years, which carry through and are relevant whether buying an investment property or your own home.

When I say the biggest investment most Australians make is their own home, it is the place where they park the majority of their wealth, be it their savings - or if they take on a mortgage it is where they put the majority of their disposable income - towards paying down that home.

The Government recognised this and thankfully your own home is actually one of the only ways that you can make money in Australia without having to pay tax.  Specifically, if you make a capital gain on the sale of your principal place of residence (or your home), you will not pay any tax on the profit that you make (i.e. the difference between what it costs you and what you sell it for).  As an example, if you buy a home for $500,000 and sell it 10 years later for $1,000,000 you do not pay a cent of tax on the $500,000 profit; as I said, it’s pretty much the only way that the government doesn’t stick their hand out in Australia.

So, your home is the biggest investment that we make, and it’s tax-free.  Given that’s the case, I don’t see why you shouldn’t apply the same rationale when it comes to buying your own home as you would buy to an investment property.

Whilst we might live in the home and it is also important to our livelihood, the fact is that the building itself only depreciates in value over time. In fact, the lifetime of a home is only 40 years from when the house is built, and most homes require significant maintenance from about year 10.  A viable solution to this would be an off the plan property which is new and you would be the first person living in it (if you chose to). Alternatively, buying land and building a house could be another attractive option for those who don't want an established property.

It is true that house prices in Australia have typically gone up, in fact on average, house prices double every 10 years and have done so for the past 50 years. If you actually break down the numbers, what you will find is that since the mid-1980s house and land prices have gone up by 8.5 and 40 times respectively.