29 Oct 5 Pros of Investing In Property
1. It is a stable investment
Over time property has proven to be a very stable investment when compared to some other markets. Yes, it has its ups and downs but the property market as a whole tends to be a lot less volatile than other investments such as the stock market. This may be due to the fact that property takes a longer time to sell (and shares can be sold in a second) and the fact that property is almost always in demand. In Australia it is a well known fact that population growth is outstripping supply and we can’t develop housing fast enough.
2. You can leverage your investment
Being able to leverage your investment means you can purchase more with less. With property this happens when you put down a deposit on the property and the bank loans you the rest. Instead of taking $60,000 and investing it in the stock market, you can take your $60,000 with the bank’s money and purchase a $300,000 house.
Leverage helps to maximise your return on investment when you experience growth. A 10% return on $60,000 in the stock market gives you $6,000. A 10% return on that $300,000 house, with the $60,000 deposit, gives you $30,000 return on investment…that is a 50% cash on cash return. Much higher because of the leverage you have.
NOTE: How many banks do you know who would lend you up to 95% of the value of your stocks? This speaks volumes about how banks see the security of property versus the security of shares and other investments.
3. It can generate positive cash flow for you
One of the pros of owning an investment property is that you can rent it out. If you can get enough rent to cover your expenses you are effectively getting someone else to buy the property for you.
You put down the deposit and the people renting the property pay for the mortgage and the expenses. If you are smart you will even have some money left over which is positive cash flow and passive income. Over time as you pay off your mortgage you gain even more positive cash flow.
With enough time and enough properties this cash flow can eventually fund your lifestyle and you could even quit your job completely.
4. Property can offer tax benefits
Property is great when it comes to tax benefits. There are many tax benefits you can claim. If you are losing money on your investment property (this is called negative gearing) you can offset this against your income and thus secure yourself a tax saving. You can also claim things like depreciation on fittings and fixtures which amplifies your tax savings. In many cases you can even claim a visit or two per year to inspect your property and accommodation while you are doing the inspections.
5. Long term investment (with potential financial freedom)
Many people love property as an investment because it can be a great long term investment. They aren’t making any more land, so by securing your parcel of land today you can reap the benefits of it in the future.
With the progression of inflation (which is the devaluation of money) over time your property is likely to go up in dollar value, rents are likely to go up to, given you invest in the right area. This means that over time your cash flow improves as you are collecting more rent and as your mortgage decreases or stays the same.
This positive cash flow can then be used to fund more investment properties or to fund your lifestyle. I recently read of a retired lady who owned just 2 investment properties and they were funding her lifestyle far above what the pension would ever provide for her.
If you would like more information on investing in property or using your SMSF to invest in property feel free to give us a call on 02 4919 0478.