How do you create income from property?
The question I pose to most of my clients when I first meet them is how do you create income from property? I get many different answers but in actual fact there are only 3 main ways of creating income from property.
Direct property cashflow
Most people associate income from property as being an excess of rent over expenses. Whilst this is one it has one big drawback — income tax. As you are earning income from your property in excess of expenses you will pay tax on your profits. This is one of the reason we aim for maximum leverage from our property to ensure we avoid income tax.
The other way you can earn large chucks of cash is to sell your property. Doing this you will be liable for capital gains tax on the increase in value over any allowances. The capital gains tax rulings change often so you will need to speak to a professional about this. The benefits of this are that you have cash unencumbered once you have taken into account the tax.
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Re-mortgaging Your Property
The final way and definitely the best way of avoiding any form of taxation is to refinance or re-mortgage the property and use the extra capital for whatever purpose. As you are using debt to fund your income you will NOT be subject to income tax or capital gains tax.
In truth all three methods will be employed as you build your portfolio of properties.
Live with passion,
Brett Wood
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