How to achieve good investment returns with a PPR

There are various strategies for real estate investment, each suited to different individuals' preferences.

Some people prefer not to manage multiple properties and are content with owning and residing in just one property. This idea can work well, and there are methods to achieve good returns within this approach.

In Australia, the PPR is exempt from capital gains tax. If you plan to own only one property, it is advantageous to leverage this policy. Regularly upgrade your PPR and use it to store your savings. When you decide to retire, downsizing to a smaller property allows you to enjoy the investment returns on your PPR without having to pay capital gains tax.

For example, let's say you have a good job and purchased a property worth $500,000 by the age of 30, with a $400,000 loan. After a few years, the property value has increased to around $1 million. Suppose you have $300,000 remaining on your loan, and your salary has significantly increased during this time, providing surplus income beyond the mortgage payments. Since the loan balance is relatively small at this point, you may not fully benefit from capital appreciation. A common practice is to use the equity in your property through refinancing and invest in additional properties.

If you prefer not to hold multiple properties, you can sell your current property and purchase a more expensive one. After selling, suppose you have $700,000 in funds. You can use this amount as a down payment and, with the support of your salary, buy a more expensive property. Then, continue with mortgage repayments. After a few years of significant property appreciation, and if your salary can support it, upgrade your property until you decide to downsize upon retirement.

This approach maximizes the advantages of the PPR's exemption from capital gains tax, eliminates the hassle of managing multiple properties, and continuously improves living conditions.

One drawback is that the continuous upgrading of the PPR, coupled with the absence of rental income, can restrict loan capacity. To secure a significant loan amount from the bank, a high salary or alternative forms of cash flow are necessary. This is a reason why many people choose to downsize after retirement.

Overall, the returns from this approach may be lower compared to purchasing multiple investment properties. The actual investment returns depend on factors such as the appreciation rate of different property categories, tax levels, loan capacity, and loan-to-value ratios.

If you encounter any challenge buying property in Australia and require professional assistance, please contact us.

We are JL Property, an independent and professional buyers agent in Australia.

Disclaimer: The information provided is not intended to be legal, financial, or professional advice. It is for general informational purposes only. Any reliance on the information provided is at your own risk.