So you want to know more about property investment? It can be a pretty complex market to get into, and you may be left a little confused. Investing in property is a big decision to make, which is why we’ve put together a list of pros and cons that may help you decide whether investing is for you.
There are a number of reasons why you might decide to invest in property, including the potential to grow your money through increased property values and renting your property out as a regular source of income. Like any investment, there are always risks that come with the decision to invest in property, so it’s important that you do all the necessary research, and are comfortable with the risks!
If the property is rented out to tenants, rent money could be a good means to help make your loan repayments. Plus, once your property has been fully paid off, that rent money could become a sweet source of income for you (score!).
Growth in House Value
If the value of your property increases over time (which may be dependent on factors like where your property is located, the condition of your property, and market trends amongst much else), selling your property means you could make a profit. Although as mentioned before- having your property increase in price is not always a certainty, so make sure you consider this risk before diving in.
Many property expenses can be offset against rental income for income tax purposes, providing a potential tax benefit. Tax benefits are dependent on a range of circumstances such as negative gearing and more - read the Tax-smart tips for your investment property journey from the Australian Taxation Office to find out more.
Purchasing property is an investment in a physical asset, which can be seen, touched, and takes up actual space in the world. Many people prefer this kind of investment as they can actually see the value of their money, as opposed to other investments like shares.
Property investment may not be right for you, which could be for several reasons - ranging from the risks involved and the amount needed to get into the property market, to the reality of how expensive it can be.Lack of Liquidity
When repaying an investment property loan, the amount that you have to pay is dependant on the amount you have borrowed, the interest rate on the loan, and any other associated fees based on the agreed terms of the loan with your bank. Your bank sets interest rates based on a number of factors (e.g. the bank’s cost of funds, outside competition and the features of your loan, to name a few), and can raise or lower them according to your agreement. If the interest rate rises, even by a small amount, you can see increases in your overall repayments – unless you have a fixed rate loan; you will be paying the same amount until the end of your fixed term. Therefore you need to understand the risks of rate rises and how that might impact your investment.
If you have an investment property, you’re going to need people renting it as this will help you when it comes to making your loan repayments. However, if the monthly rent doesn't cover the full cost of the repayments, you’re going to have to make up the gap each month out of your own pocket.
It is the reality of property investment that you may not always have tenants in your property. If this is the case, you will have to cover the full cost of the repayments yourself.
Loss of Value
While property is a popular investment strategy for many, it’s important to remember that there is no absolute guarantee that the property will rise in value. It all depends on the state of property market.
High Entry & Exit Costs
As a young Australian, it goes without saying that the property market can be incredibly challenging to enter – especially if you live in Sydney or Melbourne. But on top of this, there are a number of fees and costs that come with buying a property that you might not have considered. These can include strata fees, property repairs, management costs, stamp duty, legal fees and real estate agent fees, and can apply when buying or when selling.