Smarter Property Investment
In the past, property investment could be both a difficult and an expensive endeavour. Today, fortunately, it’s a process that’s become a very viable investment option for most people due the simplification of the whole process.
If you’re considering property investment as a means of providing for your future, we’ve put together this short guide on how investing in property can be a beneficial financial opportunity for you to take on.
What Are the Advantages of Investing in Property?
The idea behind any investment is to provide an ultimate return that will be greater than your initial investment – hopefully much greater. It’s become quite popular today for investors to purchase a property with the full expectation that the property’s value will increase with time. Below we’ve listed some of the main reasons why you might choose to invest in property –
Potential (and assumed) Capital Growth
Property, as an asset, falls into an investment class that will generally appreciate over a period of time. Certainly, there will always be peaks and troughs in the property cycle, but the Australian property market has always been considered a safe investment option. Past performances of the Australian property market clearly show that, over the long term, you can safely expect your investment property to increase in value and ultimately deliver a strong return on your initial investment.
One of the main benefits of owning an investment property is the ongoing supplementary income you receive in the form of rent. Because this would be regular income it would contribute to, and maybe even completely cover, loan repayments and maintenance expenses on your investment property. This leaves your own day-to-day income in your own pocket.
It’s a Tangible Investment
One of the main reasons why people prefer property investment over other investment types, like managed funds, shares, and superannuation is that it’s a tangible investment. It’s not just numbers on a page: property investment is a physical investment where you well and truly have something to show for your money. And of course the bonus is that you can decorate, renovate and personalise your investment property to suit yourself. Everything you do to your property can add value; meaning that you can increase your asking rental, plus your potential return at sale continues to increase.
Possible Tax Benefits
Investing in property can offer some great tax benefits, providing you have the right investment structures in place. With negative gearing there are considerable savings to be made at tax time, and keeping the investment property for longer than twelve months could make you eligible for reduced capital gains tax when you sell the property.
Important Factors to Consider
It’s not a simple process setting up investment properties to provide profitable returns; in fact it can be quite complicated. Below we’ve listed some general points we believe are worthy of your consideration when determining your property investment options –
Research, Research, Research!
Once you’ve made the decision to purchase an investment property it’s time to start conducting your research on existing rental properties in the localities you’re interested in. This is the only real way of determining what rental income you could expect to receive from your property. Even better still is if you’re able to access information on property sales for the past 12 – 18 months for similar properties. Now you’ll have sufficient information to gauge the value growth of this area.
Speak with your mortgage broker and trusted local real estate agents about their personal opinions on whether they believe the current trend will continue.
Similar to your own personal home, your investment property must be well maintained to ensure it’s always in the best possible condition: this ensures you’ll always be able to maximise your asking rental for the property.
However, you must also consider what effect these renovations will have on the overall value of your investment when compared to the cost of the maintenance or improvements. Don’t waste your money on renovations if it’s not going to improve the value of your investment property.
Property Investment Should Be a Long-Term Plan
Property investment will very rarely be a short-term investment. It’s highly unlikely that your property’s value is going to sky-rocket and offer huge returns in a short period of time: perhaps in years gone by, but today property investment is considered a long-term investment. Your plan should be to stick with your investment property for a number of years before you even consider selling. Keep in mind that, when you do decide to sell, turning your asset back into cash through the sale of the property can be a lengthy process: try to rush it and it could well result in a lower sale price.
Always Protect Yourself!
In an ideal world your tenants would be low maintenance; their rent would be paid on time, and you’d hardly ever hear from them except when they want to renew their lease on the property. But that’s in an ideal world, and it’s not realistic to believe you’ll get all these positive traits in your tenants. That’s why you must protect yourself.
Any of the following situations could (and do) occur –
- Your tenants could decide to leave unexpectedly, perhaps owing a few weeks rent;
- Your property requires costly repairs and maintenance work; or
- Your tenant breaks their lease unexpectedly; thus leaving your property un-tenanted.
There are two main options for protecting yourself should any of the above situations arise, and these are –
- Maintaining a supply of funds to allow for any of these scenarios: the funds would sit in an offset account, saving you interest; or
- You take out Landlord’s Insurance: this is a specific insurance designed to cover precisely these kinds of situations that could, and often do, arise with investment properties.
We trust that this advice will help you to approach investing in property with an open awareness of what can crop up.
Hours: M-F 8AM – 5PM, 81 The Parade, Norwood SA 5067