When it comes to passive investing, the options aren’t vast. Mostly we get to choose from cash, shares, managed funds and property. You can also create money by doing things outside the square like building up and selling businesses, multilevel marketing businesses, and the modern-day investment fads like bitcoin and the associated internet currencies. However, when it comes to long-term wealth and producing an ongoing increasing income for the rest of your life, I feel property is one of the most stable and best investment options.
Here are 10 reasons why property investment gets my tick of approval
1. Property is real
Share ownership gives you a piece of paper, or worse, a document on your computer. If the company fails, it can disappear. Investing in property means you have something tangible to show for your investment. It can be seen and touched. Even if you buy off the plan the land exists, and the building won’t be far behind.
2. Property Investment can be less risky
While all property goes up and down in value with property cycles, property generally goes up in value over time. The risk long term is much lower than other investment options like shares and managed funds, because you can’t sit at a computer and watch the value of your property go up and down by the minute. This means it also isn’t a get rich quick scheme. Trading property is very expensive with the selling costs and buying costs. It is more a long-term hold. In fact, in my opinion you should buy new property and never sell it.
3. Investing in property isn’t complex
Investing in property is quite simple. Once you know the basics of how the process works, it is quite easy to invest in property. The important factor is it is vital to do the right research or find a professional who can do this for you to get the right property, in the right spot at the right time. Unlike shares that can be swapped, turned over, sold and re-bought, the costs of changing property are a lot higher, so it is better to get it right the first time. By enlisting the help of professionals, the process will be much easier, lower risk and hassle-free.
4. Property is a proven wealth creator
The Australian residential property market has produced sound returns and has created more millionaires than any other type of investment. Naturally, there are property cycles, meaning property can go down in value as well as up, however, that is why buying and holding property long term is the perfect strategy. History and ongoing supply and demand requirements in Australia proves it.
5. Financing residential property is easy
Because of the safe nature of property, it is the preferred security at the banks for lending. Making property one of the easiest investments to fund. The terms and interest rates offered are usually the best and lowest in comparison to any other form of investment or asset. This is because should you default on your loan, the bank can repossess and sell the property, which is something they can’t do as easily with shares or other assets.
6. You can use equity to invest in property
One of the best wealth creators is the fact that you can use equity on one property to buy more. This means you don’t need to use money to save for a deposit. Getting the first property is the hardest, after that the bank will look at equity to allow for lending and add the rent to your income to help with serviceability. This can continue to assist in building an impressive property portfolio over time.
7. Buying rental properties has tax advantages
Purchasing investment properties can significantly reduce your income tax. As well as the normal deductions allowed for against investments, tax deductions will be reliant on following a few ‘rules’. Buying in the right names, e.g. the highest income earners name helps. Buying new significantly increases the tax return because of depreciation. Depreciation on the building can last over 40 years so this provides you with massive tax savings over the life of the investment. Other items such as fixtures and fittings have a depreciation claim over a shorter period, assisting in further tax savings at the time when they are needed most.
8. Property gives you an income as well as capital growth
With any investment, it is important for the capital value of the investment to grow as well as provide an income to live off. Unlike some investments, living off property returns doesn’t affect the value of the property. The value of the property will continue to increase even if you spend all of the rent.
9. A property portfolio is easy to maintain
The easiest way of managing a property portfolio is to utilise professional property managers. You may need to change and update your managers from time to time, as it is more the person than the company who you rely on. If you choose the right investment in the first place the cost of maintaining it will be much less. Buying new property is essential, not only for getting the best tax benefits but also for long-term maintenance costs. New properties built well will stand the test of time and money needed for repairs and maintenance will be minimised. Older property will always be a constant drain on the income it provides.
10. Investing in property provides long-term financial security
The value of money goes down over time because the cost of living goes up, making long-term financial security in retirement difficult when you retire with money. It’s normal to think that money equals wealth, but unfortunately, this isn’t the case. If you retired with $60k in money in 1970 you could have bought 5 brand new properties. Today you would need $2.5 million to do the same. We are living longer and longer in retirement which means we will run out of money unless you can continuously replace it. Property investments in retirement provide rental income, and rent goes up with the cost of living. This means having property in retirement provides an ongoing increasing income for the rest of your life.
So, is property right for you?
Now that you have read through some of the reasons that we love investing in property you may be wondering if property is the right investment for you.
Our property investment expert, Troy Sussman, is here to help you work that out, whether its your first investment or you are looking for the next great property for your portfolio. Make a time to chat with Troy today.
