When you are looking for investment opportunities to build your future wealth and prosperity it is sometimes difficult to know which type of asset to put your money into. The choices – from managed funds and shares in listed companies to property – all have benefits, however there is a reason why many Australians are planning to invest in property on the near future. Let’s look at five of the top reasons people purchase investment property.
Great Returns Over the Long Term
One of the golden rules of investing is that it is better to have a long-term goal in mind than expect immediate or short term returns. This is particularly true with property investment, with recent studies finding that residential investment property outperformed both Australian and overseas shares over a 20 year period[i]. Even taking a ten year period, property in Australia returned an average of over 6%, which was a similar return to listed property and fixed income funds. Importantly, property was a more stable investment during this period than the Australian stock market.
Using equity that you’ve built up in a property investment by paying down the mortgage can help you purchase additional properties, helping you build a portfolio in the future. This is often called “gearing”, and there are many ways banks and other lenders will let you access this money, including an equity facility. Some of these will allow you to borrow up to 80% of the value of your existing property for investment purposes without Lenders Mortgage Insurance.
Demand Outstrips Supply
According to property experts, many areas have experienced an undersupply of both rental and owner-occupied properties for decades. The major capital cities such as Sydney, Melbourne, Brisbane and Perth are only just now starting to catch up, with an increase especially in off the plan developments. It is not anticipated that the demand will fall any time in the near future. This is great news for investors, especially those looking for off the plan apartments as there will be a large selection to choose from, and rental incomes look set to be strong for many years to come.
In Australia there are really three tax benefits for property investment:
Negative gearing. This is where you can write off any investment expenses against your income tax, and offset any difference between the rental income you are receiving and your costs of owning and maintain the property.
Depreciation. This means that you can write off the decline in value of the property as well as its fittings and fixture over the period of several years.
Capital Gains Tax. If you sell an investment property you’ve owned for more than 12 months you only pay capital gains tax on half of your profit from the sale.
Easy To Invest In Property
Picking the right share to invest in, or getting involved in things such as contract for difference trading (or CFD trading) can require a lot of prior knowledge and research. On the other hand, most people have a basic understanding of the benefits of property – we all understand the value of actually owning something made out of bricks and mortar. Buying a residential investment property can be as simple as having a small deposit saved (for off the plan properties this can sometimes be as little as a few thousand dollars) and evidence of savings in the bank, getting sensible assistance from a property investment expert such as Ironfish, and choosing the right opportunity.