AS AN A INVESTOR, once you start claiming depreciation, you’ll notice a big improvement in your cash flow.
That’s because depreciation effectively lowers taxable income – and that means more money back in your pocket come tax time.
For most investors, the extra cash goes into savings. Or is put towards a holiday, or a new car. Or simply used for everyday living expenses.
However, there are far smarter ways to use the extra cash you gain from depreciation. And here are just a few.
Pay off your Debts
First things first. If you have any major outstanding debts, this may be a good chance to reduce or eliminate them.
While a Financial Advisor can advise which debts you should be paying off first, according to your own financial institution … things like credit card debts (which often have a very high rate of interest) or personal loans, could be a good place to make a start.
Diversify your Portfolio
Most Financial Advisors will tell you that to diversify is a great way to minimise risk, and is also important for long-term financial success.
When you have a diverse portfolio, these different investments are likely to react differently to the same economic events.
This means, that if one area suffers … you still have a stake in another area that’s growing. Ideally, this will help avoid any significant financial losses.
For example, a property investor might look to invest in shares, bonds or even venture into another sector of commercial real estate.
Grow your Portfolio
Most investors will often stop at just one property. However, if you have the means, you can experience greater returns by growing your property portfolio.
Carefully consider whether this works for your financial situation; and also, fits in with your investment goals.
As always, do some proper research to ensure you’re investing in the right location, and the right property – to maximise capital growth and rental returns.
Boost your Super
It’s never too early to plan for your retirement. If you’re aiming for a similar standard of living once you retire … you will need to make some voluntary payments, on top of what your employer contributes to your superannuation.
This money is concessionally taxed, will generally be locked away until you retire and you will benefit from compounding returns over time.
Renovate your Investment property
Is your investment property in need of an upgrade; or simply crying out for a fresh coat of paint? Well this is your chance to rectify that.
Using the extra cash from depreciation to improve your current property is a great idea, provided you don’t over-capitalise.
Doing this could potentially boost rental returns and increase the overall value of your property.
Expand your Business
If you’re a commercial property investor or running a business as the tenant, any extra cash never goes astray.
Depending on how the business is performing, you could use this extra cash to expand or invest in other parts of your business.
For example … this may provide you with funds to upgrade your business equipment, or start expanding into new areas.
Bottom Line: Please note that these examples are general in nature and do not take into account your personal situation. As always, you should consult with your Financial Advisor when making such financial decisions to determine the best course of action for your individual circumstances.