The benefits of buying an investment property
Top benefits of investing in a property in Australia
Looking for your first investment opportunity or thinking of expanding your investment portfolio? An investment property is one of the best choices out there. It’s easy to understand compared to stocks or bonds. Plus, financing is extremely accessible with plenty of low interest mortgage rates available, or you can use your home’s equity fund to the investment.
But before you start your investment into real estate, it’s always best to see the full picture. For a better idea on what owning an investment property entails, check out the pros and cons of property investment below:
Pros of Property Investment
The benefits of investment property vary depending on what type of property you buy and what you want to do with that investment. Here’s a quick list of the most common advantages of an investment property:
Enjoy tax benefits
As a property investor, you can maximise your return on investments with tax deductions such as:
- Negative gearing: This occurs when the mortgage repayments and expenses exceed the rental income. You can offset the income which saves on tax.
- Depreciation: Investors can claim depreciation allowance on fittings and fixtures, and you may also be entitled to building allowance deduction.
You can also claim a portion of costs related to managing and maintaining your investment property and property depreciation as tax deductions. With these tax deductions, you’ll be able to save on upkeep costs and fees while getting more profit.
Remember, eligibility to some tax benefits depend on the State or Territory you live in so it’s best to check beforehand.
Get capital growth
When you buy a property and sell it for more value than you bought it for—that's capital growth. The increase in value over time can vary depending on factors like market conditions and location. You can also increase capital growth even further by making smart improvements to your investment property overtime.
To really take advantage of capital growth, you need to sell your property at the right time. For instance, if the market is hot in your local area, you can capitalise on the high demand by selling your property immediately to get the most out of your investment.
Earn passive income
The most common property investment are rental properties. Rental properties are those you buy with the purpose of leasing them out. You can easily earn extra income from your rental properties without expending too much effort.
Although this might take more work because of tenant management, upkeep and maintenance, and other landlord responsibilities, it could be a really profitable investment for the long term.
A more stable investment
Real estate is considered to be a relatively less volatile investment compared to stocks, bonds, or shares. The real estate market is usually more predictable and easier to navigate especially for novice investors. Plus, properties often appreciate in value in time with inflation, you can use equity to fund your investment, and it can provide you with a steady cash flow or a good payout.
A flexible asset
An investment property can be a much more flexible investment compared to other types of investments. With an investment property, you can choose to flip it or rent it out. If you have a vacation property, for example, you can rent it out part-time for extra income and use it the rest of the time for personal holidays.
Cons of Property Investment
Like any investment opportunity, investing in real estate has some drawbacks. Make sure you’re aware of these disadvantages so you can decide if it is worth investing in property.
High entry and exit costs
Buying an investment property is a tough task. You have to think about the financing, putting in a deposit, and other additional fees like stamp duty, real estate agent fees, and legal fees. A real estate investment is not the easiest to get into and the price may be too steep for some. Know if you can afford an investment property using a home loan calculator.
Interest rates may rise
In a similar vein, once you’ve purchased your investment property, costs could still add up if interest rates rise. An increase in interest rates mean you'll have higher repayments which could affect your total income.
Lack of liquidity
If you’re in a hurry to turn your assets into cash, investment properties are not the way to go. It takes a lot of time to sell a property. Even in a really good market, you’ll still have to wait a few weeks until the paperwork and inspections are done.
Takes a lot of time and upkeep
Investment properties, especially rental properties, require a lot of time and attention. You have to think about maintenance costs, checking in on tenants, and other tasks. This could prove to be stressful if you’re not used to this kind of work.
Potential loss of value
Investment properties don’t always increase in value over time. If the property value goes down, you might end up owing more than the property is worth.
Is a property investment worth it?
It depends on what you’re looking for in an investment. As stated above, investment properties have plenty of benefits as well as drawbacks. Understanding what you need with your investment is the first step in finding the perfect investment opportunity for you.
Know more about investment properties and how to finance them by talking to one of our friendly lending specialists!
About the article
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