Is cash really 'king'? Knowing if your investment stacks up

Is cash really 'king'? Knowing if your investment stacks up
Is cash really 'king'? Knowing if your investment stacks up

Kerry Packer once said ‘Cash is king’.  That was easy for him to say after Alan Bond had just given him $1 billion.

For the majority of us who do not have the luxury of a Bond we need to invest our money so we can accumulate the cash at some future date.

As property investors begin to return to the market many will be enticed by the lure of cash tax benefits such as depreciation and stamp duty savings.

While these benefits are an important consideration in your overall investment strategy, they should never be the driving factor in asset selection. This is because they are short-term tax benefits that have very little impact on the future performance of the investment.

Yes it maybe is true that cash is king for those that have it, but for the rest of us the long-term viability of the investment is ‘King’

Stamp duty savings are a one off benefit at the time of purchasing off the plan. At the same time most of the depreciation allowance an investors receives is used up in the first five to 10 years.

Investors need to be wary that these tax benefits are often used as marketing tools to sell property but because they are only short-term the investor will not be able to use the same marketing tools when it comes time to sell their investment.

When selecting investment property it is important to focus on the long term economic drivers that will underpin its performance and will continue to be there in years to come. These factors include the underlying land value, supply relative to demand and the evolving demographic trends. 

While there is nothing wrong with investing for tax benefits investors need to consider the overall investment. In other words if in the end the investment does not make any money or even worse looses money were the tax benefits alone worthwhile.

My understanding of investing is to invest to make money at some date in the future. The benefits should come at the end not at the start.

Yes it maybe is true that cash is king for those that have it, but for the rest of us the long-term viability of the investment is ‘King’. Everything else is just a bonus.

As property investors return to the market they would be wise not loose sight of that fact.

Mark Armstrong

Mark Armstrong

Mark Armstrong is a director of ratemyagent.com.au, Australia's number one real estate agent rating website.

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