Every type of investment has its pros and cons. But property has long been the preferred path to financial independence and wealth for many people. Here are 10 reasons why.
Despite the fluctuations of “boom and bust” cycles – and the recent dire warnings of a property market collapse during the COVID-19 pandemic – the sector is a consistently solid performer. Over the past 30 years, Australian house prices have increased on average by 7.25 per cent per year, according to the RBA.
Investing in property is considered to be “safe as houses”. Unlike the share market, property is generally more stable due to the amount of time that transactions take. This minimises wild fluctuations in value and tends to deter the short-term speculators who can increase volatility. In fact, the majority of investors (about 70%) are owner-occupiers.
You don’t need specialist or technical knowledge to start investing in property. Compared to the complex world of share trading, it’s a familiar asset that is easy to understand. Plus, information and data is readily available for free, allowing you to easily research the market and make well-informed decisions.
4. Borrowing Power
Compared to, say, a share portfolio, it’s relatively easy to get finance for a property investment – especially with the help of a mortgage broker. Lenders are more likely to approve loans on residential property than any other asset class and will lend a higher proportion of the value (up to 90%) and at lower interest rates. This greater borrowing power enables you to benefit from the capital growth of a larger asset and increase your profit.
One of the great advantages of real estate is that it can provide investors with secure income that steadily increases over time and helps you pay the mortgage (using someone else’s money). If your property is positively geared – that is, it generates more in rental income than it costs in loan repayments and other ownership-related expenses) – then you also get the added benefit of positive cash flow.
With fewer people able to afford their dream houses and the level of home ownership slowly falling in Australia, the proportion of tenants is predicted to rise in the years ahead. As long as people choose to live in bricks-and-mortar dwellings, property will always be in demand – meaning plenty of opportunities for people to earn money from this type of investment.
Property is a very flexible investment. Whatever your financial goals, you should be able to find a strategy that suits you – whether it’s maximising long-term capital growth to build a retirement nest egg or putting money in your pocket now through positive cash flow (where rents outweigh your costs). It also offers investors complete control, as you directly own the asset. Want to raise the rent? No problem. Need to move in for a while? You can do that, too.
8. Capital Growth
Residential property has a proven history of consistently strong capital gains, with some regional areas (such as Queensland’s Sunshine Coast) outperforming many capital cities. Provided you invest in a quality property in a sought-after location with strong growth potential, the value of your investment should continue to grow in value – doubling every 10 years or so.
9. Easy Entry
Property investing is not just for the rich; many people can create wealth this way. Even if you don’t have a cash deposit, you can still achieve your goal of becoming a property investor by drawing on the usable equity in your home, for example, or setting up a self-managed super fund (SMSF). Seek professional advice about the options available to help you get into the market.
10. Tax Benefits
Tax relief, in the form of deductions and depreciation, makes investing in property more attractive and affordable for Australians. Investors can claim investment-related expenses (including running costs and interest on any loan used to buy the property) as tax deductions, lowering the tax payable. They can also benefit from depreciation – the decline in value of the property, fixtures and fittings over several years.