Property investment gives you a multitude of options when it comes to growing the value and income of your property.
Property investing is relatively simple if you follow a time-tested, proven investment strategy.
The property market is less volatile than other investment asset classes such as stocks or mutual funds.
The property offers more financial leverage than many other asset classes.
Property has consistently been the major source of wealth for Australia's multimillionaires.
If you by a quality asset and are prepared to hold property over a number of years, it's bound to rise in value.
Forget investing in the share market, bonds, or even gold.
And definitely avoid crypto!
Whether it's planning for retirement, simply building your wealth, or planning to leave a legacy for future generations, here are 9 reasons why the residential property market is the best place to invest your money.
1. You have “control” over your investment
Unlike other investment classes, a property investment gives you a multitude of options when it comes to growing the value and income of your property.
Property is a great investment because you make all the decisions and have direct control over the returns from your property.
If your property is not producing good returns, then you can add value through refurbishment or renovations or adding furniture to make it more desirable to tenants.
In other words, you can directly influence your returns by taking an interest in your property and by understanding and then meeting the needs of prospective tenants.
And you can also control where you buy, how you buy, how much you buy, and when to sell.
2. Property investing is simple
Unlike other investments - like shares or more complex ‘instruments’ such as derivatives - property is fairly simple to understand.
It is also tangible - you can look at it, touch it and even live in it.
You know what a house, unit, or townhouse is and you don’t need a 60-page prospectus to tell you all about it.
Warning: Just because something is simple to understand doesn’t mean it is easy to do.
If property investing was easy everyone would be a property investor, and a successful one.
Of course, property investing is relatively simple if you follow a time-tested, proven investment strategy.
The problem is that most of us act emotionally and irrationally when it comes to money.
Some of us are too cautious and stay in our comfort zone and invest in our own backyard, while others are in too much of a hurry and chase the next hot spot.
3. It gives consistent, solid growth
As long as there is demand for property, you have a good chance of realising solid growth from your investment.
In contrast with the stock market, which tends to be more volatile and complex, property investment outperforms many other asset classes.
It’s important to remember Australia’s demand for property will be underpinned by the government’s “business plan” to increase our population to around 40 million people by the middle of the century.
That means we are going to be adding another Melbourne, Sydney, and Brisbane to our housing market in less than 20 years.
Add to this huge demand the fact that we are a wealthy nation and likely to remain amongst the wealthiest people in the world and this will underpin home values in our capital cities.
4. Property investment offers stability
As I touched on above, the property market is less volatile than other investment asset classes such as stocks or mutual funds, especially amid volatility.
Australia’s property market continues to be propped up by the fact that close to 70% of properties are owned by homeowners and around half of these have no mortgage against their home.
In fact, the total value of Australia’s residential real estate market is close to $10 trillion and is only a total of around $2 trillion in debt against this.
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Sure some young first homeowners have bitten off more than they can chew when getting onto the property market, but they tend not to sell up when things get tough – they would rather eat Maggi noodles than sell their homes.
Of course, our property markets are cyclical, and at times values slump a little, but it’s worth noting that these price drops are not real losses until you actually sell the property.
As I said, homeowners rarely find the need to sell up and property investors should have a long-term focus and cash flow buffers to see them through the ups and downs of the property cycle.
5. You have more leverage
The property offers more financial leverage than many other asset classes.
And the more leverage you have, the quicker you can build wealth.
Fact is, property investors, use other people’s money in three ways:
- The bank’s money for leverage to buy a bigger asset,
- The tenant’s money for income and…
- The government’s money in the way of tax incentives and depreciation allowances
6. Property can be more predictable
While nothing in life is guaranteed, there is no denying that property investment is more predictable than other investment classes.
Sure, no matter how much data is quoted or analysed, no one can really accurately predict how the property markets will behave in the future.
And if you’re counting on your property to grow in value year after year you will be sorely disappointed because growth in property values is never linear and there are many factors that are out of your control, no matter how diligent you are.
But, the difference with property compared with other asset classes is that if you follow the golden rules of property investing, treat your property investments like a business, buy investment-grade properties, invest for the long term and ensure you have sufficient buffer to cover unexpected expenses including rising interest rates, vacancies, maintenance issues, and any other surprises - the results will be more predictable versus the share market where things can change from one minute to the next with rhyme, reason or warning and are totally out of your control.
7. The government wants you to be a property investor
With around a third of Australia’s population being tenants, the government can’t supply sufficient public housing and therefore encourages ordinary Australians to become property investors and supply rental accommodation.
To assist you our tax system allows you to claim legitimate expenses of your property investment business along the way.
There is a long list of expenses related to the purchase and maintenance of an investment property that is able to be claimed as an immediate tax deduction and can be claimed in the income year that they were incurred.
Some of these expenses include:
- The cost of advertising for tenants for your property
- Bank charges and interest on loans including break fees on a fixed loan repayment
- Body corporate fees and charges;
- Council rates, electricity, gas, and water charges (unless these are borne by the tenants)
- Building, contents, and public liability insurance;
- Some legal expenses and lease document expenses;
- Depreciation (which relates to the wear and tear associated with the building and the fixtures or fittings in the property)
- Pest control
- Maintenance and service costs
- Gardening and lawn mowing costs
- Any fees and commissions paid to property agents and quantity surveyors
- Any travel and car expenses
8. Property can make you rich
If you look at the results others have achieved, you have to say that property makes pretty good investment sense.
According to the AFR Rich 200 list, which is published each year, the property has consistently been the major source of wealth for Australia's multimillionaires.
And it’s the same all over the world.
Those that haven't made their money out of property generally invest their money in real estate.
Remember, there's nothing wrong with seeing what successful people do and applying those principles to your own life.
If the majority of extraordinarily wealthy people have used real estate profitably, it stands to reason that there’s money to be made in this sector.
9. The property market is forgiving
Even if you bought the worst house at the worst possible time, the chances are good that it would still go up in value over the next few years.
History has proven that real estate is possibly the most forgiving investment asset over time.
If you are prepared to hold property over a number of years, it's bound to rise in value.
There's really no other asset class quite like property!