In recent years, many investors have been focused on the short-term gains they can make from investing in property, thanks to Sydney and Melbourne’s booming real estate market.
Now that boil has become more of a simmer, it’s the perfect time to reflect on some of the longer-term benefits you can hope for when you decide to become a property investor, especially if you are looking to secure your financial future.
These include, but are in no way limited to, the following…
It’s the safest wealth creation vehicle for everyday Australians
Bricks and mortar enable everyday Aussies, “mum and dad investors”, to build their wealth with minimal risk.
Over the decades, property values have risen pretty consistently across the country, and unlike many other investment products, property gives you a huge amount of control over your assets.
You can insure it, improve on it, and the options should you wish to sell are numerous – renovate and “flip”, subdivide, knock down and rebuild, to name a few.
You’re probably already investing in the share market with your superannuation fund, so investing in property is an opportunity to diversify and avoid putting all your eggs into one proverbial basket.
This gives you better growth prospects and protects you in times of economic trouble, providing the security we all crave.
You can hedge your bets against inflation
One of the sticking points in our economy at the moment is the idea of wage stagnation – that as the cost of living as continued to go up, wages are lagging behind, leaving many everyday Aussies with less spare cash after they’ve paid their bills.
Investing in property protects you against this phenomenon, because house prices and rents tend to rise along with, or in excess of, inflation.
That means as bread and milk become more expensive, so too does the asking rent on your investment property – even if you’re wages haven’t budged.
Your increased living expenses are covered, so you won’t be counting your coins at the checkout hoping you have enough to cover the essentials.
Not to mention, you’ve got a concrete asset that you always have the option of selling, should you need access to a large amount of cash.
Inflation is eroding your mortgage
Our current record-low interest rates mean there has never been a better time to leverage your property investment against inflation. Even if your property only grows in value at the rate of inflation – which we know hasn’t been the case in Australia, where house price growth has generally outstripped inflation – you’ll be a step ahead of those whose money is in the bank earning paltry interest.
And chances are, home values will continue to rise well in excess of inflation, making you even better off.
Your original mortgage may have been for $500,000, but in ten years your property could be worth more than double that.
Even if it’s negatively geared, so you don’t see a cent of the rental income, and you never pay a dollar off the principal, you still owe only the original amount.
You now have half a million dollars in equity – sell and live off the proceeds, borrow against it to fund your next purchase, it’s up to you.
It offers you 4 ways to make a profit
When you commit to investing in property as a long-term strategy, you’re actually gaining access to a number of ways to boost your bottom line.
- Of course, there is the capital growth – how much the property will appreciate in value over time. This alone is a big money-spinner for long term investors. While short-term market fluctuations make affect investors who buy and sell properties rapidly, those who plan on holding their portfolio for many years are virtually guaranteed good capital growth.
- In addition to the growth which the market affords you, there’s the manufactured growth you can expect when you do improvements and renovations. This forced appreciation not only boosts the value of your investment property, it could also improve your equity position and enable you to grow your portfolio faster.
- Then, there’s the rental income. This will vary depending on the property type, area and local rental market, but at the very least it should go a long way towards covering the interest payable on your loan, if not return you a profit in the hand.
- Another profitable component of property investing is the tax benefits on offer. Now that the federal election is over, we can all breathe a sigh of relief that there will be no changes to negative gearing legislation in the near future. By taking advantage of the tax breaks available, property investors can minimise their income tax while growing their wealth – talk about a win-win.
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