Investing in property seems to be the ‘ hot ’ topic in every conversation . However , investing in property is a huge decision , and it may suit some investors more than others . Here are some things to keep in mind before you dive in . It seems like everyone in Australia is leaping on the investment property bandwagon these days . And with historic low interest rates and soaring house prices , it ’ s easy to see why .
As a long-term investment , real estate has an obvious advantage in that the demand for housing will continue to grow as the population grows . But it ’ s important to remember that property is a long term investment in general , meaning it could be many years before you start to reap the rewards .
So is property the right investment vehicle for you ? It all depends on your financial situation , your investment horizon and your current and future needs . If your heart ’ s set on entering the market but you don ’ t want to commit to buying an investment property outright , here ’ s some good news .
There are other investment vehicles available , such as managed funds and real estate investment trusts , which can give you a piece of the property action without you having to fork out a big cash investment .
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WHY INVEST IN PROPERTY ?
Property is considered to be a less volatile investment than other types of growth assets , like shares . There ’ s also more than one way to make money on your investment , you can generate a steady income by renting to tenants , and then hopefully turn a profit if you ever decide to sell .
If the rental income you earn is enough to cover your loan repayments , you can potentially treat the property as a ‘ set and forget ’ investment while your tenants are paying off your mortgage .
There are also possible tax advantages associated with borrowing to invest , especially if you apply a negative gearing strategy . This is when your mortgage interest repayments ( and other tax-deductible property expenses ) are higher than your rental income , you use this shortfall to reduce your other taxable income , which in turn can reduce your tax bill .
ARE THERE ANY DOWNSIDES ?
Of course , there are risks associated with every investment , including property . Property investment is not a one way bet and there can be extended periods where property values fail to increase or even fall in value , particularly outside of capital cities . It ’ s also worth
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remembering that if you only invest in property , you ’ re putting your eggs all in one basket , even more so if you are buying a single investment property , concentrating your risk in a single area and property type , a risk that investors in once booming mining towns are now all too familiar with .
When you ’ re looking to buy , it ’ s not just the property ’ s price tag you need to consider . There are plenty of other costs involved as well , from upfront expenses like stamp duty , legal fees , conveyancing costs and loan establishment costs ( if borrowing to purchase the property ) and ongoing expenses like rates or strata fees and maintenance expenses .
When disposing of a property in the future you also need to consider conveyancing costs , estate agent fees , associated
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expenses and capital gains tax . If the rental income you earn isn ’ t enough to cover your mortgage repayments , it might help to reduce your tax bill but it can also place a major strain on your cash flow .
If interest rates rise , or your tenants move out and you can ’ t immediately replace them , you could be saddled with additional costs you haven ’ t planned for . For negative gearing to work , the overall after tax and after costs gain on the property when it ’ s sold needs to outweigh the amounts lost each year while negative gearing .
You should also keep in mind that an investment property isn ’ t an asset you can easily convert to cash . If you ever need access to some money quickly it could take months to sell your property and you may be forced to sell it for less than market value .
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JERONE BALAGTAS ALTERNATIVE WAYS TO INVEST
One way to get the benefits of property investing but without having to buy a property yourself is to join a managed fund that invests in Australian or international property . This allows you to leave the dayto-day management of your investment to a fund manager with expertise in property investment portfolios .
Another option is to invest in an Australian Real Estate Investment Trust ( A-REIT ), also known as a listed property trust . Similar to a managed fund , an A-REIT is a pool of investment capital that is used to invest in a shared portfolio of commercial and industrial real estate . Returns are based on the rent earned by the underlying property assets .
Because of the strength of this collective pool of funds , A-REIT investments
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Jerone . BALAGTAS @ onelending . com . au
can give you access to highquality properties like shopping centres and office complexes , which would otherwise be inaccessible to most sole investors . You can also diversify your property investments across multiple sectors and regions , reducing their overall risk compared to an investment in a single property .
Another advantage is that you buy and sell units in the trust rather than an entire property – so you can cash in your investment whenever you need to . On the other hand , since A-REITs are listed on the stock exchange , your investment will be subject to share market fluctuations .
As with any major financial decision , it ’ s a good idea to consult a finance specialist before you decide to invest in property . I can help make sure you choose the right option for your financial goal .
Jerone is a local successful Filipino mortgage broker part of the One Solutions group , he has 15 years experience in the accounting / finance / banking industry . He walks the talk as he is a successful avid property investor himself . Jerone encourages anyone to contact him regarding questions pertaining to investments and finance , e-mail at Jerone . BALAGTAS @ onelending . com . au or 0439 594 899 . Jerone can help you with your home loan needs and assist with financial planning .
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