If you are considering property investment, it is important to weigh both the potential benefits and drawbacks so that you can decide if it is the right choice for you. The experts at Noel Jones have compiled an in depth list below exploring both sides to help you on your investment journey.
The benefits of property investment
No specialist skills required. If you’re new to investing in property there is plenty of information available from a variety of sources – online, your local bank and local real estate agent.
Growth of your asset. Your asset is likely to increase in value over time. Some will grow at a faster rate than others, however those with slower increase rates can still deliver a good return if held on to for a reasonable period of time.
Someone else is helping you pay for it. With rent money being paid by a tenant on a fortnightly or monthly basis your own financial contribution will be reduced. The shortfall will depend on your purchase price plus initial start-up costs, and how much you are able to collect as rent.
Potential tax benefits. If you have a property that is negatively geared, it may provide you with some substantial tax benefits. One such method is through negative gearing which means you can claim tax benefits where your costs of financing and managing your investment property are greater than the income generated from it. This can be one of the best ways to reduce your outgoing taxes so talk to your accountant or financial planner to ascertain if this would be of benefit to you.
Involvement. You can have as little or as much control over managing your investment as you choose, unlike other holdings where you will likely have little involvement. You may choose to manage the property on your own, or you may enlist the assistance of an experienced rental property manager to do this on your behalf.
Protection of your asset. Unlike other investments, property is something you can insure to mitigate risk. Many insurance companies now offer ‘Landlord Insurance’. This can cover you for a range of things including property damage by the tenant, loss of income due to tenants breaking the lease or long term vacancy plus damage by fire/flood/storm.
The drawbacks of property investment
Initial start-up costs. As well as the purchase price of the property, you will need to consider stamp duty, legal or conveyancer fees, potential broker fees if you buy through a specialised property investment company and the possibility of mortgage insurance depending on your borrowings. These can add thousands of dollars to the initial cost of the property unlike other forms of investment.
The ongoing cost of property investment. Most investments types do not have an ongoing cost associated with them, however property will always have a certain amount of ongoing expense attached. You need to consider the cost of land tax, water, council rates, body corporate fees, property maintenance and repairs, building and landlord insurance to name a few. There is also the possible shortfall between your mortgage and your rental income.
Liquidity. Selling property can be more time consuming than selling other investments such as shares. If you find you need quick access to cash the process to sell your investment property from property appraisal to settlement will usually range from 30 days to in excess of 120 days.
Periods of vacancy. There may be times when your property is not tenanted or in between tenants, leaving your asset vacant. Without rental income you will need to have the money to cover the entire mortgage payment yourself.
When deciding if property is the right investment strategy for you it is important to carefully consider all of these factors and come to a conclusion that is right for you. For more information or to find out how we can help you on your property investment journey contact your local Noel Jones agent today.
