The big difference between property and any other type of investment is that you can actually touch it. Its bricks and mortar, not just numbers on a screen.
It’s also considered one of the more solid, less volatile forms of investment. Investors tend to like property for it’s:
Potential capital growth (increase in value).
Ongoing rental return.
1. You don’t need a big salary to get started- Lenders consider the potential rental income you’ll get from the property when calculating how much you can borrow. So property is a viable investment option for first time property buyers as well as existing property owners.
If you already own your own home, and have a reasonable amount of equity in it, you mightn’t need to raise any cash to start investing. Banks will lend usually you up to 70-80% against the security of residential property, which means that most Australians with a steady job and a little capital behind them can afford to buy investment properties. Many average income investors create substantial investment portfolios through the principles of investing in residential property.
Over the long run, property investors all over Australia have become wealthy in as little as ten years of being serious investors in property.
2. Proven wealth creation strategy- More millionaires have been created through property other forms of investment. The old saying, if you do what successful people do, you will become successful. The majority of wealthy people have used a real estate portfolio to increase their long term wealth.
3. Security- It’s often said that residential real estate offers the security of ‘bricks and mortar’, but let’s take a closer look at why I believe it’s one of the safest and potentially most profitable investment markets in Australia.
Even in slump markets, houses do not devalue to zero and go broke. Some companies do however. Even allowing for the ups and downs of real estate values, and the recent global financial crisis, over the long run residential property in the major capital city residential markets has been steady growth and a solid investment.
Banks have always recognised property, and especially residential real estate, as an excellent security. The reason they’ll lend you up to 80% of the value of your property is that they know property values have never fallen over the long-term. In fact, the entire Australian banking system is underpinned by the continual growth of residential property. The majority of residential homes are owner-occupiers and therefore the population will always need a home to live in. This ensures that there will never be a panic sell of the whole market like can occur in the stock market.
4. Growth of income- The rental income you receive from your investment property is usually indexed to inflation, and the value of the property. This allows you to borrow and gain the benefit of leverage by helping you pay the interest on your mortgage. This has historically outpaced inflation. Statistics show that the level of home ownership is slowly decreasing in Australia, in no small part due to increasing property prices. This will ensure pressure on demand for rental property as a place to live for many Australians.
5. Consistent capital growth- Over the past 25 years the value of the average property in all capital cities has doubled in value every eight to 10 years Property should be regarded as a medium to long term hold, and short term fluctuations in the market need to be placed in perspective. In the short-term prices can is much more uncertain and confused, and at times capital growth stops and even reverses, as we saw in the early 80s, the early 90s and in some areas in the most recent slump we experienced in 2008. Over the long run, property should still be a solid investment.
6. OPM- Other people’s money- Using OPM enables leverage and providing you can afford the repayments, and have some buffer in the form of your own equity, this is a normal and legitimate strategy for a wealth creation
7. You calling the shots- Property is a great investment because you make all the decisions and have direct control over the returns from your property. You can sell when you want, buy what you want, choose the tenant, renovate, fix, and add value, all sorts of things.
8. Tax advantages- The Australian Tax office (ATO) provides property investors a host of legitimate, legal tax advantages to owning an investment property.
9. Add value- There is lots of ways to add value to a property, from presentation, furnishing, subdividing if applicable, extending, the list is endless.
10. Realize equity without selling- Unlike most other investments, when your equity goes up you can go to the bank and borrow against the increased equity.
11. Most forgiving- Even if you bought the worst house at the top of the peak, in the worst street, if you hold long enough, it will eventually go up and value. History has proven that real estate is one of the best, if not the best most forgiving investment assets over the long run.