Why To Invest In Property
Property investment is a tried-and-true investment option that’s historically proven to be more stable and more predictable than many other investments in Australia. Overall property values rarely fluctuate like the stock market can, and most often increase, so you’ll likely benefit from a good return on your investment and stable cash flow from incoming rent payments.
The pros and cons of investing in the Australian property market and your options for building an investment portfolio using property.
Unlike buying a home to live in, an investment property is usually bought with the goal of making money (usually via rent). So, things that might be important when looking to buy a home (such as proximity to your workplace) might not be as important in an investment property.
There are many reasons why investing in property continues to be a popular choice and is often seen as one of the best ways to invest money in Australia. However, mistakes can be expensive, so it’s always a good idea to think about why you’re investing in the first place, and whether it fits with your set of circumstances.
Pros and cons of property investment
Here’s a list of some things to consider when it comes to investing in property.
Property is a familiar and tangible investment that’s often easy to research and understand. It can also seem less volatile than other investments.
|The cost of buying and selling a property
On top of the hefty price of the property itself, there can be a significant entry cost to investing in property including stamp duty, legal fees, building and pest inspections, and loan set up costs.
Many of the costs involved with owning an investment property (eg advertising for tenants, fees paid on your loan, maintenance, etc) may be tax deductible.
Although many investors focus on the positive impact of tax deductions when deciding whether to invest in property, it’s important to remember the potential impact of capital gains tax which you may be liable to pay. This is a key difference between an investment property and a home to live in, as paying capital gains tax is generally not required for the home you live in.
|Potential for long-term returns
Property can deliver long term returns if the value of the property increases over time. And of course, there’s also the potential to receive rent as a source of income before the eventual sale.
|There are no guarantees
There tends to be a common belief that Australian property values are likely to increase over time. However, that’s not always the case, and the property value isn’t the only thing to consider. When looking to buy for investment, research:
|Access to equity in your property
Equity refers to the current market value of your property, minus the amount you owe on the property.
|Equity isn’t a guarantee
Your equity isn’t a set number. The market value of your property can go up or down, so the equity you have in the property can also rise and fall.
|More decisions within your control
Unlike investing in the share market, where the companies you invest in generally have their own management, you manage the important decisions for your investment property, including ways to increase its value, such as with renovations.
If you decide to make some physical changes to your property to increase its value, make sure you’re aware of how the changes will impact the value of your property and whether it’s worthwhile.