Property is often the first port of call for Australians looking to build wealth, and can be a sound investment option. It is often less volatile than shares but, and this needs to be remembered, it is best viewed as a long term venture. I am sure you have read about people who have bought a house cheaply, renovated it quickly and made a bunch of money. This sounds appealing but often takes a lot of work and the return is not as great as you might think. Serious long term property investment is where you grow real wealth.
What are the benefits of property investment?
Our population continues to grow at an astonishing rate and with this growth comes the need for affordable housing options. This helps make property investment a reasonably secure long term investment – even if house prices drop, causing rental prices to go down, if you have the financial plan in place to cover you during the down times you will bounce back stronger than ever.
Investing in property gives you a solid visible asset that earns rental income (that may even cover your loan repayments) whilst also realising capital gains in the future. It gives you the option to minimize your tax through various gearing options and works to diversify your portfolio and reduce your risk if you have other investments. You’ll find that once you have one investment property it won’t be long before you start looking for another. As the equity in your investment home loan grows, it gives you the opportunity to expand your portfolio with additional investments.
What are some of the risks involved in property investment?
There are risks involved in any investment, and property is no different. So what are the major concerns? We’ve outlined them for you:
- The property drops in value – this would have to be the major concern for property investors. We all know that the property market can experience volatility – no matter how much thought you may have put into the location/land size/ proximity of public housing etc of your investment, if the market is struggling, the likelihood is that you will struggle too. We recommend you sit down with your investment advisor and discuss the ways to handle this before you make your first purchase. Have an action plan in place, so if the market does crash you know you are prepared.
- You’re not getting the expected rental return – it may be that a few simple updates to your property (a coat of paint, some new plants in the garden, an air-conditioning unit in the bedroom) may help increase the desirability of your property. It is important to allocate a sum each year for general maintenance and upkeep, as a small outlay each year can be the difference between top and bottom end rent. Again, discussing this with your property advisor will ensure you are prepared for those times when you may need to contribute a little extra to cover the gap caused by poor rental return.
- Interest rates rise– the fear of interest rates rising is a real one, and you if have invested rashly, without first asking for any professional advice, it may prove to be your downfall. Talking to someone who understands the property market and who can give you clear cut advice on how to manage the difficulties experienced when interest rates rise is invaluable.
- You struggle to find tenants and/or have bad tenants – despite screening your prospective tenants thoroughly there is the chance that you will end up with a bad egg. While this is frustrating and can be incredibly time consuming, we’d like to remind you to look at the big picture. Over a 10 year period you may well only ever experience 2 or 3 bad tenants. Move them out, and get new ones in. Don’t let one bad experience put you off, as the long term benefits of property investments far outweigh dealing with 1 or 2 unruly renters. The beauty of using a property manager is that you don’t have to deal with the troublesome tenants, and our Nieuvision property managers know how to cope with difficult situations.
Know your strengths and weaknesses
Investing in property can be time consuming and overwhelming, so you need to know if you can cope with the responsibilities involved. It can require you to become a business manager, marketing specialist, accountant, tax adviser, product developer, handyperson, customer service rep, inspector, and people manager. Does this sound like you? Do you have the skills required and the time available to get all of this done?
If not, it may be best to employ a professional. You need someone who is experienced and dedicated, whose job it is to make sure your investment is working for you.
Investment property research
Once you have decided to invest in property you need to begin your research. There are many points that need to be taken under consideration before rushing out and buying a property. By researching thoroughly you can, hopefully, reduce some of the risks involved in investing in property.
Basic advice is to always buy in locations that are close to transport, with easy access to schools and amenities. This increases your chances of finding tenants. You’re also more likely to win with capital gains down the track. When deciding between buying house or buying a unit, it’s important to consider what best suits your budget and cash flow, and look at the makeup of residences in your chosen area.
At Nieuvision we thoroughly research each property, looking in detail at the long term plans for the area, and so are able to suggest with certainty the properties we feel will bring the highest return on your investment.
What else could I invest in?
So you have read all of this and decided that property investment is not for you. What now? There are other options available for wealth creation, and we have suggested some below.
Shares- they are considered growth investments because their value can rise (but fall just as quickly). Prices can be volatile from day to day and shares are generally best suited to long term investors, who are comfortable to withstanding these ups and downs. You may be able to make money by selling shares for a higher price than you initially paid for them and, if you do own shares, you may also receive income from dividends, which are effectively a portion of a company’s profit paid out to its shareholders. Whilst shares and managed funds have historically delivered better returns than other assets, they are considered one of the riskiest types of investment.
Cash- is described as a defensive investment. This means that it generates regular income (through interest payments) as opposed to growing in value over time. It is generally a safe option, providing a stable regular income. Cash investments are most effective when placed in high interest savings accounts and fixed interest investments like term deposits, government bonds and corporate bonds.
Talk to an expert
Before you take any steps towards becoming a property investor we highly recommend talking to an expert. Sit down with one of our team members and discuss your goals. We can put together a solid plan that will see your portfolio grow quickly and safely, ensuring a positive experience for you and for your wealth creation journey. Call us today on 1300 832 554