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Many financial advisors will repeat the mantra that it is important to have your money “work for you”. This means that it is possible to use your money in such a way that it will generate income for you. Passive income exists when you do not need to complete any tasks in order to receive those funds. Generating passive transfer income is one of the most important secrets to generating individual wealth. To achieve this goal, you will need to invest your money.

One investment option is property. If you choose to purchase a property as an investment, it suggests one of two things:

1. You are planning to offer it on the rental market, with tenants living in the property and paying you rent.
2. You are hoping that the value of the property will increase over time, and that you will be able to sell it for more than you paid.

The first option will generate passive income – you will receive rent (assuming that you are able to find a tenant) without completing any extra work. The second option is called a capital gain. This means that you are hoping for the price of the asset to increase over time. You should know that the two options are not mutually exclusive – you can offer a property for rent, and then sell it when the price of that property has increased.

There are obvious advantages and disadvantages to this option. Property prices are prohibitive, and so it can be a very expensive way to generate wealth. In most instances it will require you to take out a substantial loan. If interest rates increase during the life of that loan, then it is possible that the rent will no longer cover the cost of servicing the loan. This will require additional personal funds, and this means that it is possible for a property owner to default on a loan during these periods.

On the other hand, property is a very secure investment. Many people like to be able to “see” where their money has gone; when buying a property you can not only see the investment, you can walk around inside it!

It is also worth noting that the government has provided certain taxation incentives for property investors. While you will pay tax on any rent that you receive, you can deduct the interest payments on any loan that you have against the property. You can also deduct payments for repairs, and if the property is relatively new you can depreciate it. All of these things mean that it is possible for your expenses to exceed your revenue. While this might sound unusual for an investment option, it means that your money can be positioned in such a way that your wealth is increasing and you are receiving a tax return from the government at the same time. This is known as negative gearing, and it is very common amongst property investors in Australia.

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