Most expats considering buying an investment property are hoping for a "capital gain", especially since most may have seen their own property increase in value considerably.
However, when buying an investment property the "capital gain" is arrived at in a very different way and it is important that this is understood in order to really appreciate the benefits of "investment property".
Let us consider a property bought for U$100,000 with a mortgage of 70%, U$70,000.
Most people will be hoping that the property market will rise and make a capital gain on the price paid for the property ie. U$100,000. Let us assume that the property market does rise, but at a slower pace, and after 10 years the value has risen to U$150,000.
This represents a 50% increase in the purchase price, a gain of U$50,000. However, since this is an investment property this gain, if realized, could be subject to Capital Gains Tax.
However, in the mean time the tenant has paid off the mortgage of U$70,000. It is this U$70,000 represents the real capital gain, and this is not subject to capital gains tax. This is a guaranteed capital gain and tax free. Any gain in house prices is totally speculative, potentially taxable and really only the icing on the cake.
So for an initial investment of only U$30,000 you receive a guaranteed tax free capital gain of U$70,000 and a speculative (taxable) gain of U$50,000.
If, unfortunately, you buy at the top of a "property bubble", and (as many commentators in the press have been predicting) the property market crashes by 25%, you would still have a gain of U$45,000 tax free, plus a potentially useful U$25,000 tax loss.
In order to determine the best solution for you, meet with one of our advisers, who will asses your current situation, or issue that you want addressed, and will construct an effective affordable solution specially tailored to fit your needs.