Top reasons why property investment is a powerful asset

Purchasing an investment property has become a popular type of long-term investment in South Australia. Many investors own their own houses and are familiar with the property market to some extent. Traditionally, property is a stable form of investment with attractive advantages and less volatility than alternatives. Here are our top reasons why buying an investment property is a strong form of investment.

Understandable & Controllable Asset

For a layman investor, purchasing property is unambiguous. You are purchasing a physical asset, something you can see and touch rather than something conceptual like futures or bonds.  Not requiring any specialist knowledge makes the knowledge barrier to entry lower than complex investments such as currency trading or exchange-traded products. The buying process is the same as purchasing your own home with formalities such as: stamp duty, conveyancing fees and building reports. Additionally, investment properties are more stable than mutual funds or stocks in unstable economic periods. As long as the population continues to increase, demand for housing ensures that house prices are reliable.

Another advantage is that you have some control over your asset. Unlike other investments, property investment has the option to add value to your asset growing the income and value of the property.  You have control over when and where you buy, sell and if you want to adjust rent as the market changes. Investment strategies can be straightforward. The most important things you need to understand are cash-flow, capital growth and yield.

Regular Income

Being able to predict cash flow and having a reliable constant income makes investment property an attractive option. Income is more certain because you receive constant rental payment from the tenants. If the rental income is higher than the mortgage repayment of an asset, the loan will slowly pay itself and you may also have surplus funds to cover any property costs incurred. The best way to ensure that your return on investment remains consistent is to minimize the time between tenants. This minimizes the time when the rental income is less than the repayments on your mortgage.

Capital Growth

Property markets in South Australia have historically enjoyed stable long-term growth. Should this continue, any property investment should grow in value. Commonly, property investors will purchase run down properties and renovate them to increase the value. When the time is right to sell, buyers see a greater return on their investment.

Portfolio Diversification

Investing in anything comes with inherent risk – dividing where your money is invested is often considered a way of mitigating risks.  Property is one of the largest asset classes and is fundamental to a well-diversified portfolio. From an investment standpoint, property investing can be split broadly into the residential, commercial, industrial and retail sectors. An advantage is that property can be both directly owned, such as most residential property, or indirectly owned. indirectly property can be managed through a fund, syndicate structure or a real estate investment trust.

Tax Advantages

To get the most out of an investment there is a range of tax-deductible expenses you can claim. Completely legally, a good accountant can reduce tax bills by tens of thousands of dollars, improve your cash flow and minimize tax expenditure. Negative gearing is a major advantage exclusive to property investment in Australia, any value your property loses you may be able to claim against other income tax through employment or other investments. Many investors take advantage of this in the current market if they have an income they can utilize.

 

For more information on investment property, check out ASIC’s MoneySmart financial guide. Some useful tools include their Mortgage Calculator.

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