The Powerful Reasons Why Property Investing Works
Why is property a great investment? There are all sorts of reasons why you may choose property over other investment types. This article examines some of the best reasons to invest in property.
So, you’ve built up a little nest egg and you’re wondering what you should do with it. Some may choose to just keep their money where it is. They’ll add to it whenever they can before living off their savings later on in life.
Others want to use their money to make a little more money. That’s where the idea for investing comes in. When you make smart investments, you can build on your nest egg and set yourself up for later life. But bad investments could lead to you losing that nest egg entirely.
If you decide to take a risk, you have to ask a question. Which investment type works best for you? Stocks and shares have the potential to generate great returns. But they also present more risk.
To mitigate that risk, many people choose property investing. But why is property a great investment? Here are 10 reasons to invest in property.
Reason #1 – It’s Easier to Get Started
Investing in shares and stocks requires a lot of specialist knowledge. You have to know how all of the systems work. Plus, you have to research tons of different businesses and investment opportunities. You need to do all of that before you get started. Plus, you need a solid lump sum of cash to make the investment worthwhile.
Property investing is much easier to get into. If you own your own home, you already know the basics. You’ve already gotten a mortgage and you know what people like you look for in a property. You can leverage that knowledge, plus everything else that you learn, to make your investing decisions.
Moreover, the money you have stretches further when you invest in property.
How does that work?
Let’s say that you have $50,000. When you invest in shares, this means you have $50,000 to work with, plus margin lending up to 70% value. But when you invest in property, that $50,000 gives you access to a $500,000 loan. As a result, you can make a much more valuable investment with less cash.
The low barrier to entry is one of the main reasons to invest in property.
Reason #2 – Stable Increases in Value
Barring market crashes, property tends to increase in value. You need only look at the figures from the Australian house price index to see that. By and large, house prices increase during most quarters:
Figure 1 – http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0
Those figures show the most recent trends in Australia. But these increases are a trend that’s occurred in the Australian property market for decades. In fact, Australian house prices have increased by an average of 7.25% every year for the past 30 years up to 2015.
The stability of property investment is one of the main reasons to invest in property. You can generally rely on the market to help you generate a capital gain. If you put some work into improving the property over time, you’ll generate even higher returns when you sell.
Reason #3 – You’re in Control
When you invest in stocks and shares, you’re relying on other people to do the work. You need a company to continue innovating and producing products that interest customers. Moreover, you have to hope that company maintains a strong public profile and brand. Any slips mean that the company’s value drops. This leads to you losing money, despite having nothing to do with those bad decisions.
With property investing, you’re in control. You own the property and every decision relating to it goes through you. As a result, you’re more able to influence the destiny of your investment through your own work.
Of course, many investors employ property managers to handle the daily tasks. They may even let these managers take responsibility for finding tenants and maintaining the property. But even they won’t make the final decisions for you. It’s your property and you’re in control of what happens to it.
Reason #4 – You Can Earn a Dual Income from it
Many investors ask themselves a key question.
Should I invest for growth or yield when buying property?
It’s true that you should probably focus on one or the other. But investing for growth doesn’t mean that you can’t rent the property out. And investing for yield doesn’t always means the property won’t increase in value over time.
With property investment, you can earn a dual income. You’ll enjoy whatever profit you make when you decide to sell. But you can also generate a weekly or monthly profit from renting the property out during your ownership.
Reason #5 – People Need Property
No matter how successful a company is, people rarely need their products. The things they make are luxuries rather than essentials. Take Apple as an example. You may need a phone. But you don’t necessarily need an iPhone. There are tons of other models out there for you to choose from.
But people need property. They need shelter from the elements and a place to call home.
Here’s the point. Companies come and go. New technologies overtake old technologies, which has a massive effect on a company’s fortunes. Just look at what happened to Blockbuster when Netflix started to gain popularity.
But people always need property, which means there’s always a market for your property investment.
Reason #6 – You Can Claim Depreciation
Don’t underestimate the importance of the various tax benefits that come with investing in property. The value of the property’s assets, as well as the property itself, depreciate over time.
You can claim this depreciation from your tax bill. Usually, this requires the help of a Quantity Surveyor, who will create a depreciation schedule for you.
With older properties, it’s possible to claim back thousands of dollars in depreciation annually. This not only means it’s easier to make the property pay for itself. It also helps you to manage your cash flow and potentially make other investments.
Reason #7 – Current Low Interest Rates
The current national interest rate stands at 1.5%, and has done for almost two years:
Even with some speculating that interest rates will increase in 2018, they’re unlikely to shoot up massively.
This creates a great reason to invest in property. You can take advantage of Australia’s low interest rates to access better home loan products. The low rate reduces your monthly mortgage repayments, which makes it easier to maintain a property investment.
Furthermore, many investors have access to interest-only loans. These home loan products allow you to only repay the interest on your loan, often for several years. With such low interest rates, you can minimise your monthly repayments. You can often do this until your property generates enough income to repay both the principal and interest on the loan.
Simply put, the current interest rate in Australia creates a favourable environment for investors. Take advantage of it now and you can invest with less cost.
Reason #8 – It’s Something to Leave Behind
Property is a much more tangible investment than stocks and shares. It gives you something real and accessible for the money that you spend.
Building a portfolio of investment properties gives you something to leave to your children. Think of it as your legacy. With smart investment decisions, you can create an income stream that your children can benefit from for many years after your death. In many cases, this long-term income outstrips that received from life insurance or stocks.
Your investment property gives your children a foundation to build from. They can carry on your work and make a successful business out of investing. Or, they can have a ready-made home waiting for them, which cuts down on the monthly burdens that they face.
Reason #9 – It Carries Low Risk
The value of property may fall in the short term. But it usually increases over time. We covered that above.
But you must also know that this makes property a low-risk investment. If you put all of your money into stocks and shares, it’s possible that you’ll lose it all in a matter of moments. A company announcing bankruptcy puts paid to any money that you have invested in it.
But no matter how bad the property market might get, you still have something. Even if the investment ends up losing money, it won’t lose all of your money. You can still sell the property and get something back. If things go wrong with other investments, you’re often left with nothing.
Reason #10 – Increasing Demand
Australia’s population has grown every single year since 1960. In fact, there’s only one year during which this growth fell below 1%. Moreover, analysts expect Australia’s population to keep growing. A combination of natural population growth and immigration should ensure that.
Why is this a good reason to invest in property?
A constantly growing population means that there’s always going to be a demand for your property. People need somewhere to live. You can use this to your advantage by providing the supply.
Furthermore, population increases also benefit you in terms of the money you make. With more demand comes more competition. This allows you to raise your rents and increase your property’s annual yields.
You need only look at the rate of construction in Australia right now to see that demand outstrips supply. When you invest in property, you benefit from that high demand.
The Final Word
An investment carries a certain amount of risk. The same rings true for property. It’s possible that you will lose money if you make the wrong choices.
The difference between this and other investments is that you’re unlikely to lose all of your money. Property investment provides stability and is easier to get into. Plus, it gives you something tangible to leave behind for your children.
But before you can enjoy the benefits, you need to find the right property. That’s where Cohen Handler can help. Our team of buyer’s agents can provide you with the information that you need to find a great investment property.