Some people would argue that investing in property is less risk than shares, yet all avenues of investing should be investigated thoroughly for suitability to your circumstances and goals, prior to signing on the dotted line.
Benefits of investing in property
- Property as a whole is less volatile than other investments
- Tenanted investments provide rental income
- Increases in property values provide capital gain when sold
- Property expenses can be claimed as tax deductions
- You don’t need a law degree to purchase an investment property and
- You’re investing in something tangible
Downfall of property investment
- The rental income generated may not necessarily cover all costs associated with the property, leaving you with a financial gap to cover
- Interest rate fluctuations can affect your disposable income
- Vacant investment properties means covering all financial costs for an unspecified period of time
- The property can only be sold as a complete entity and can’t be split when more income is needed
- Property market crashes can leave you with a mortgage bigger than the value of the investment and
- The costs associated with the property, such as stamp duty and agent fees can be quite expensive.
Investing solely in property increases risks, whilst diversifying into self managed superannuation funds, property and trading funds provides a broad range of investments with reduced risk.
This is not to say that property should be avoided.
On the contrary property can be very financially viable to your investment portfolio, however where and what you choose to purchase can have a great effect on your financial return.
What makes a solid property investment?
- Purchase property in areas you know well, cutting down on research as you may already know what to expect to pay for that particular area
- Research high growth areas. The Real Estate institute of Victoria (REIV) website provides free information on growth areas per quarter.
- Look into areas with potential for high rental income compared to the value of the property
- Speak with local Real Estate leasing agents in the area you’re looking to invest to discuss vacancy rates, as these can alter future sale prices
- Consult with the local councils regarding proposed future zoning and developments that could adversely affect the properties value
There will always be many properties on the market, yet you will want to look for properties that appeal to a wide range of people.
- Scope out accessibility to local transport, shops and schools
- Aim to include all segments of the market such as a home that could suit families, singles, retirees or couples
- Look for properties that require little maintenance, perhaps avoiding pools or manicured gardens
- For units, ensure that you know all the outgoing costs associated with it, such as body corporate fees
Choosing property investments as a part of your financial plan is a great way to build wealth.
As with all investments, choose wisely, research well and seek professional advice.
At Strategic Financial Advice we have over 20 years experience when it comes to investments.
You can trust that we’ll provide you with the best advice when tailoring a property investment plan with you.