If you’re a first-time investor you might be at a point where you are considering investing in property but are not yet convinced whether it is the right step to take.
In this blog, I give you the top reasons why you should consider investing in property and how it can build wealth for you and your family over time.
Here are my top 5 reasons why you should invest in property:
The property market has fluctuations, but property values have consistently kept growing over time despite the major events in the market that have impacted them. Property prices move through four phases (Peak, Declining, Bottom and Rising) in a typical 7-10 year cycle, so it is recommended to hold your investment property through as many cycles as possible. This is to ensure you get the full benefit of capital growth over time.
Property is certainly less volatile than other investments like shares. Investment property generates a fixed return for the investors and the income is more certain because you receive constant rental payment from the tenants.
Residential real estate is considered a stable investment by the banks because of its proven capital growth over the long term, and they use it as prime security or collateral for loans, so may lend investors up to 90% of the value of the property.
Having an investment made of bricks and mortar that you can ‘touch’ adds to the security of the investment as you have full control over the asset and how it is occupied, managed and improved over time.
2. CAPITAL GROWTH
A carefully selected and well-located investment property is likely to deliver greater returns in the future, not only through capital growth but also in the form of rental returns. But when you are initially building your property portfolio, cash flow will be more important than capital growth.
Cash flow keeps you in the market and capital growth gets you out of the market. If you cannot afford to hold the property, you will not benefit from time in the market and capital growth.
In time, as your portfolio grows, you can diversify into different property types, and in different states and locations. This presents the opportunity to accumulate assets that are more for cash flow or for capital growth, therefore assisting you to purchase, hold and accumulate more wealth over time.
Well-located capital city properties have seen their values double every 10 years or so, growing at around 7% per year on average, according to the Real Estate Institute of Australia.
Pay down debt as quickly as possible to multiply your wealth by reducing debt and equity gains through positive market growth. This way you can leverage off the equity in your investment property to get a loan and purchase another investment property and build a portfolio in time as the equity compounds.
The ideal situation where you could be doubling your equity is when you are paying off a principle and interest loan during an upturn in the market and the prices are on the increase.
4. ADD VALUE
You can increase the capital value of your investment property by making improvements to it which would, in turn, make it more appealing to the tenant, minimise vacancy periods and increase rental income. This could be through cosmetics improvements, structural renovations or a potential subdivision of the property if you are looking to sell.
5. TAX BENEFITS
When owning an investment property you can offset most property expenses against your personal and rental income. You can claim tax at the end of the financial year on expenses such as maintenance, property management fees and council rates. The interest charged on your investment loan is also tax-deductible.
But a word of caution, tax benefits are simply that, benefits, it should never be the key reason for you to invest in property. It should be seen as a way to minimise tax to help increase the cash flow as you start your investment journey and build your property portfolio.
It takes time and effort but it is worth it!
Investing in property is a process that takes time, research and understanding of the pros, cons and risks, as well as associated costs of buying, managing and selling. If investing in property was easy everyone would be doing it, but it is worth the effort in the end.
If you are not fully confident in getting started, it is important to rely on someone qualified and experienced to assist you on the journey. I have established EKR Property to assist first-time investors and seasoned investors in sourcing, negotiating and securing their next investment property and building a property portfolio to set them up for retirement. I can also put you in touch with mortgage brokers and accountants for further financial and loan advice if needed.
The earlier you start your property investment journey and building an asset base safely, the earlier you can create a passive income with property to replace your own income.
With record low-interest rates, and the market going through an upturn, now is a once in a lifetime opportunity to consider starting your property investment journey. Feel free to reach out to EKR Property anytime at email@example.com to book a free consultation.