Wealth Begins at Home: Your Family Home

The most important asset that you can own as a foundation for future wealth is your family home. There are numerous benefits, but the most important is that you don’t have to pay capital gains tax on any rise in your property’s value. This makes your family home the most tax-effective, and probably the most effective vehicle for accumulating wealth.

Investment for Family Home

According to the ABS, net home equity is responsible for 41% of household wealth, with superannuation funds coming in second, and ancillary properties coming in third place. We are waiting for a more current study, but the six year study from 2003-04 to 2009-10 shows trends that are still very relevant in today’s market.

In 2009-10, the average household income had risen 14% over 2005-06, and 30% over 2003-04. Over that six year period, the family home was responsible for a third of increased household wealth, in both regional and metropolitan areas. This is especially encouraging for young, first home buyers in outlying communities, because the property there is more affordable, but still provides the same ratio of wealth creation as it would in higher-priced markets.

Due to an increasingly volatile share market, investors are becoming increasingly interested in property as a long-term investment. The Australian Finance Group revealed that approximately 36% of new loans in 2011 went to investors. In addition, many investors are taking advantage of the recent change that allows Australians to buy investment property with their supers.

According to the ABS, the percentage of households using properties as an investment vehicle increased roughly 10% over the six year time frame of ABS study, and made up approximately 31% of the net wealth of households who chose investment properties as a vehicle for wealth creation.

So, what does this mean to you? It means that if you don’t count property and real estate holdings, your super would be your most valuable asset, meaning that you wouldn’t have enough money to provide for your retirement.

The best advice: buy your first home as soon as you can, and use the equity to help build your net worth. Even considering the sharp drop in prices after the Global Financial Crisis, real estate has historically been the most stable investment vehicle and surest way to build wealth.

While the mortgage does create a lot of debt, it is more than offset by the exemption on capital gains taxes when property increases in value, and first home buyer programs make it possible for many people to buy their first homes when they wouldn’t otherwise be able to.

Right now is one of the best times in history to buy a first home or an investment property. Real estate prices haven’t quite caught up with the rest of the economy’s march toward recovery yet, but it is inevitable that they will. In the meantime, those who buy now should see some very nice gains as the market rises in the coming years.

Once you buy your first home, you will be building equity on your initial investment, including grants, savings, and deposits. Every time you make a loan repayment, you will also be creating equity. The same goes for home improvements. Last, as we mentioned above, your tax-exempt capital gains not only create equity, but accelerate due to a principle called “compounding.”

Your first home is the perfect investment; you are investing in both your present and your future. Call us today for more information.


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