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Real Estate

The Pros and Cons of Property Investment

When it comes to investing your hard-earned cash, there are many investment options available – but my favourite is property.

In my mind, if you want to develop financial freedom, you need to choose an investment vehicle that will generate wealth-producing rates of return.

I know of no better option than property based on its reliability and performance advantages compared to the alternatives.

But successfully investing in property isn’t as straightforward as you might think.

There are many pros and cons of property investment, and you need to be aware of all of them in order to ensure you have the best chance of success.

The facts speak for themselves…while many investors start out with the best intentions of making it big in property investing, only a handful will ever get past their first investment.

Rather than making the same mistakes the average Australian property investor makes, let’s look at the benefits and downsides of property investment to stack the odds in your favour.

Here is everything you need to know about the pros and cons of property investing.

Benefits of an investment property

Here are 13 benefits of property investments:

1. More property millionaires

One could observe that investing in property appears to be a financially sound decision based on the positive outcomes of others.

Property has consistently been the major source of wealth for Australia’s multi-millionaires.

And it’s the same all over the world.

And those that have made their money in businesses other than property generally invest their money in real estate.

2. Anyone can do it

It isn’t only the affluent who can invest in property.

It doesn’t really take large sums of money to get involved in real estate.

Banks will typically lend up to 80% or higher of the property price, making investment properties accessible for Australians with steady employment and some funds to put towards purchasing them.

the pros of property investment

3. Property investment helps to provide security and stability

Residential real estate investments are considered reliable as they are physically observable assets. However, I would like to explore why I think they are among the safest, and potentially most lucrative, investments in Australia.

Residential property has outperformed all other investment assets over the past two decades, and that even includes shares.

That’s because, as a bricks-and-mortar investment, the property is more stable than investing in assets such as shares – Australia’s property market is robust and has a built-in safety net in that it is the only investment market not already dominated by investors.

In fact, as many as 70% of property owners are owner-occupiers, with investors accounting for the remaining 30%.

You don’t have to believe me when I say that residential property is a secure investment.

Just ask the banks.

Banks have always considered real estate, particularly residential, as superior collateral.

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Note: The reason banks can give you up to 80% of the value of your home is because they are certain that its value will not drop in the long run. In reality, the entire Australian banking system is propped up by the steady increase in residential property values.

The total value of Australia’s residential property market is worth around $9.5 trillion and there is only around $2.3 trillion in debt against this.

That’s because around half of all Australians who own a home don’t have a mortgage against it, having paid it off years ago.

4. Property investment provides an income stream

The rental income obtained from your investment property enables you to get a loan and get the benefit of leverage by helping you pay the interest on your mortgage.

The rental income property investors have earned through the years has gone up and it has risen faster than the inflation rate.

And with a shortage of well-located properties at present, at a time when our immigration is booming, it’s likely that rents again to keep rising strongly.

5. Property investment builds wealth

Well-located capital city residential property has an unequalled track record of producing high and consistent capital growth.

Over the past 45 years, the value of the average property in all capital cities has doubled every ten years or so.

Of course, residential real estate does not always increase in value.

The property market moves through cycles and each boom leads to the next downturn just as each downturn paves the way for the next boom.

That’s why property investment should be seen as a long-term (10 years +) investment.

Borrowing Money

6. You can buy it with someone else’s money

The beauty of the real estate is that instead of buying it with your own money, you use someone else’s money to buy your properties.

That is, you put down a small deposit, often 20 per cent, and the bank finances the rest. This is called leverage.

7 . You are in control

Investing in property is a great idea because you have complete autonomy over the decisions you make and you can directly determine what returns you get from it.

If your property is not yielding satisfactory profits, you can increase its value by renovating or furnishing it to make it more appealing to tenants.

In other words, you can directly affect the profits from your rental property by understanding what tenants require.

8. Property investment gives tax benefits

The majority of the costs associated with owning an investment property can be deducted against your annual tax bill, to help reduce the amount of overall tax you pay for the year.

Not only that, but you can also usually make a claim each year for depreciation, which is an allowance for the wear and tear of the property over time.

You can claim tax benefits on the following:

  1. The cost of advertising and marketing for new tenants
  2. Loan interest and bank fees
  3. Body corporate fees and charges (not including special levies)
  4. Building, contents, landlords, and public liability insurance
  5. Council rates
  6. Property management fees
  7. Depreciation, relating to the wear and tear of the building and its contents
  8. Negative gearing
  9. Gardening expenses
  10. Land tax
  11. Utility fees (where it’s not paid by the tenant)
  12. Pest control
  13. Repairs and maintenance
  14. Some legal costs and lease document preparation expenses
  15. Capital gains discount

As you can see, there are several options for an investment property to reduce your annual tax bill.

READ MORE: How does owning an investment property affect taxes?


9. You can add value

One can boost profit and the worth of your investment property in many different ways, from small tasks such as applying a layer of paint or discarding the rug and buffing the floorboards, to undertaking large renovations and developments.

10. You don’t need to sell it

You don’t have to sell property to make money from the value growth, as opposed to other investments.

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Tips: Go to your bank or finance broker and ask them to raise your loan to use the additional funds as a deposit for your next property purchase.

11. Property is an imperfect market

When I look to invest, I want to invest in an imperfect market.

This means that I’m more likely to be able to buy an investment below its true value, or I can sell above its true value.

Let me explain this in more detail.

The world of shares is not a completely perfect market, but it’s about as perfect as it gets.

That’s because it is a liquid market where investors are well-informed.

I can buy stocks at the same price as anybody else can.

In general, the overall marketplace has the same information as I have, because, for the most part, the information is equal.

This shared knowledge creates a more “perfect” market.

On the other hand, real estate is what I would call an imperfect market.

I know many people who have bought properties at 5, 10, or even 15 per cent below the real market value.


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