How couples can invest with a single income

An update to the national housing market

With property prices on the rise, it’s easy to assume that a couple with a single income can’t afford to invest in property. However, by putting the right strategy in place, having a clear set of objectives, and understanding the options available to you, couples on one income can invest in property effectively. Investing without having to separate bank accounts or consider individual budgets, a couple can use their joint power to secure a property together, even if one of the partners does not generate an income. Here are some ways couples can make it easier to invest on one income.

Negatively gear

A common and effective way to invest in property, is to negatively gear any investments in such a way to maximise tax benefits. Negative gearing involves purchasing an investment where the interest charged exceeds your rental income, therefore incurring an annual loss. This loss is deducted from your annual income which ultimately reduces the amount of income tax you pay while helping your cash flow. To do this, an investment property should be purchased in the name of the higher-income earner in order to offset the value of the tax deductions against their income.

Put it in a trust

Setting up a family trust and using it to structure or secure your investment purchases can help save money off your overall household tax bill. Trusts give couples and families the ability to work between family members and protect assets from creditors while continuing to build wealth. Trust distributions can be allocated to an unemployed family member or partner on lower tax rates, and therefore save thousands in tax.

It is important to note that when using a trust for investment properties, a couple will not be able to distribute a loss; making this a less suitable option for negatively geared properties. Furthermore, properties in a family trust are not entitled to the first homeowner’s grant or stamp duty concessions.

Use existing equity

If you or your partner already own a property, you may have untapped equity. Equity is the value of your asset less any debt. For example, if your property is worth $500,000 and you owe $200,000 on your loan, your equity is $300,000. This equity can be used strategically to purchase another investment property reducing the financial burden. If you have equity, you can use it to borrow more for an investment loan, or you may not be required to pay a deposit to secure a purchase when using your equity as security.

Reduce debt

Reducing your debt essentially reduces your financial liabilities. Before committing to a new loan, ensure any other outstanding debts are minimised as much as possible to help with cash flow. If your partner is producing little or no income, the less pre-existing debt you have will help lenders approve a loan to secure a property.

An investment property is a long-term strategic financial decision, and it’s important to seek relevant and trustworthy advice before making any decisions. Contact CPS Property today to discuss your investment options.