There are multiple ways of making money in the world. Most popular amongst all is Investment. Investors have shown immense interest in shares investment and property investment. Under all the circumstances property investment is more lucrative to the investors in Australia because the Real Estate Market has been a dominant part of Wealth creation for multimillionaires in Australia. But you see, it’s not as easy as it sounds. It takes a fair share of research and planning for a great property investment. And after all things said and done investment property is worth every bit of your time and money if invested properly and smartly(Smart Property investment Link).
Property investment is easy to start as it is loanable and safe compared to the share market and anyone earning a decent income can afford it and earn higher returns than in share market. Now let’s bolt on a few more good reasons that sets property investment apart from any other form of investment.
Also note that this article aims at enhancing your knowhow of property investment and by no means shall be considered as final advice. We urge you to get deep down into the research part by yourself and consult a professional or expert to get structured advice. Now let’s begin!
REASONS TO INVEST IN REAL ESTATE IN AUSTRALIA
- Capital Gains and Capital Growth:
Capital gains and growth are one of those aspects that attract the majority of investors to invest in property rather than shares.
Capital gains in general means the gain earned on the sale of the property. Capital growth means the increase in the value of the property over the period of time. Capital gains and growth are co-dependent.
Higher capital gains and capital growth lies in buying and holding the property for the long term. Research shows that properties in Australia tend to double in approximately 7 – 10 years duration. Hence, if you are holding up it’s a better and wise option for you leading to an amazing wealth creation.
Capital Gains can be increased by adding some extra value to your property via repairs, repainting, interior updates etc.
Capital gains are also deductible against your income tax. Hence, it is a major income part while investing in a property. What is the difference in capital gains on property investment and other investment options?
Due to its loanable characteristic, an investor has the potential to invest more in properties and as we all know in investment higher the principal, higher the gain. There sure can be exceptions to this rule too but it’s reliable.
Other investment options too can provide higher capital gains and growth (with very high volatility) but investment property also allows you constant and growing income in form of rental yields in addition to Capital gains and growth.
For better capital gains you must select the property very wisely as to where, when and how to invest and we believe there is no hard and fast set of rules to do so. But you must know the common factors that can help you in choosing the right property(Link to how to choose an investment property?) suitable to your requirements
- Stability with financial security and safety:
Unlike the share market, the Real Estate Market has shown stability and high rise even after the turbulent hit of COVID 19. It is said that the property market in Australia showed that level of downfall for the first time in the past 3 decades. Hence, the title of this point suffices when it comes to property investment in Australia.
Just like any other investment options, the property market too faces fluctuations in short-term but it is relatively more stable in long-term and eventually has higher potential income returns compared to any other investment options. Banks also find property investment more reliable and hence, allow you great loan options to motivate more investors.
Following that, it would also be naive to not admit that property investment does have its own risks. Here, proper Risk Management, Right set of strategies, teamwork and meticulous research can make your investment in property the safest allowing you better financial freedom and security.
People often make mistakes by selling their property off when they see the tides hitting the market for a short duration. It may seem loss making at times but if held on properly for a good duration of time, property investment can bounce back better.
Unlike companies and people, houses never go broke and that also makes it a better investment decision than stocks and shares. To earn well in stocks and shares one must take way higher risks compared to investment properties.
When it comes to security and safety we always mention NDIS Housing investment which is blacked by the federal government. If you have never heard of it earlier or know only a little about it, we have got your back! You can read about it here (Link to NDIS-an exclusive opportunity).
- Tax Advantages:
Australia has an exceptionally favourable taxation environment for real estate investors, it takes due diligence to understand it well. Investment properties have more tax benefits compared to equity investments. Let’s understand how?
ATO offers multifold taxation benefits in the form of tax depreciation, breaks and deductions available on property investment. Therefore you can save thousands of dollars in taxation in various ways and we have covered it separately in tips for saving tax on your investment property (Link for the same)
You can also consider Tax Withholding via ATO where you can avail a tax break everytime you receive the salary.
One interesting thing worth considering in tax deductions is section 1031 as per IRS rules. This section basically suggests that you can trade or exchange one investment property for another like-kind investment property instead of selling it and then reinvesting and thereby availing the advantage of deferred taxes. Hence, you can keep swapping your investment properties for years and then when you sell it you will be accustomed to probably lower taxes based on the slabs and regulations applicable then.
If your investment property fits the eligibility of 1031 then you may have to pay no tax or minimal tax at the time of exchange/swap. You must research in depth about this section as there are few rules and conditions set by the IRS (Internal Revenue Service) for the same.
- Appreciation:
Property appreciation means increment in the value of properties. National average property appreciation rate is somewhere around 3% to 5%. There are various factors appreciating the value of a property such as repairs, renovation, upgrading fixtures, furniture addition and upgradation, etc. Not all the upgrades and renovations appreciate the value of a property hence, consider taking the advice of a recognized appraiser or professional before constructing your final decision about it.
Appreciation is that factor which can allow you to buy a cheaper property and yet gain higher revenues. Apart from this the other factors constituting the appreciation of an investment property are population growth, DSR, interest rates, market fluctuation, inflation etc.
- Leverage:
To leverage means to increase the potential gains in an investment via various borrowing or funding methods.
In terms of an investment property one has leverage to borrow more funds from banks as compared to shares or stocks. Banks are always ready to lend 90% of your property investment value due to the level of safety and the return rate. Share and stock market is super volatile and unreliable by banks.
Due to the leverage factor an investor with even a small amount handy can invest in property and avail a loan of at least 10 times higher value and thereby he/she can earn higher returns than shares. This is not possible in any other investment mode.
Though property investment has its fair share of fluctuations and risks, it is a long-term profitable investment if chosen well. Hence, you can always leverage it to borrow more and increase your returns. With the concept of Leverage it won’t be wrong to mention that you are investing with someone else’s money.
- In Your Control:
Unlike shares and stock investment, real estate allows you more control. Share market is run and managed by the company’s performance of which you have no control at all. But in case of investment property you are the owner, manager and everything else, hence you can have entire control over it. Yes, property market prices also go high and low but other than that there are multiple aspects where you have full control. Henceforth you can make calls about what to change or update or any other decisions. You have all the rights on your property and its related decisions and improvements whereas you cannot change or update or improve anything in terms of shares.
- Ease in Research relatively:
It’s not that property investment is super easy but when compared with shares and stock investment it is simple to understand and research. Shares and stocks demand high and specific education and knowledge level or else it could be a big failure. Jumping in that world without expertise is a naive move.
Real estate investment has a limited field of research such as demographics, location, DSR, property type etc. Due to ‘N’ number of options and companies in the share market it becomes tougher to understand and research as it takes a lot of digging in the ocean of reports etc.
To ensure no failure in the share market you have to get to an expert who can manage your portfolio full time over a period of many years. Hence, the research of seasoned and better managers also adds up in it. In property investment’s viewpoint the research is simple and to enter the market it doesn’t need extreme digging or to hire any full time experts. You can consult for once and formulate the decision and manage the portfolio by yourself.
Almost all the information is available online hence, the research in regards to property investment is easier. You can physically visit the property and understand the place well or you can frequently visit the auctions and open houses to estimate the property values and costs etc.
You can also take advantage of your elders’ knowledge in this regard as almost all the elders are well aware of the property market and may know where it could be more profitable. Financial literacy is not very common to be gained by every citizen hence, it is unnecessary that your elder knows everything about the share market, this makes the research in this area tougher.
- Diversified Portfolio:
Don’t we all agree that even being one of the stable and secure investment options, property investment still has the risk of price drops or natural calamity and a few more? But at the same time real estate is that investment choice which can change your life.
Of course risks can’t be mitigated but it can be well managed by Portfolio Diversification. Portfolio diversification simply means to allocate your investment capital in such a way that it can minimise the risks and losses via a mix of assets and strategies. Let’s understand further.
It is always said that to keep your investment secured you must invest in different options and places. Hence, a successful portfolio diversification will mean investing in different localities, different states and cities, houses and units, different ranges of houses and with varied strategies. The basic idea here is to invest in a way that is dynamic and can appeal to different sectors, class and demographics of the people providing you a wider range of tenants thereby reducing the risks.
- Multiple options for investment:
There is no limitation as to where and how you want to invest. Real Estate investment can be done in multiple ways. Hence you have a window of opportunities open for you whether or not you have a lot of money in your hands.
You can invest in the following few ways:
- Rental Properties (Houses and Units)
- Flip Property – You can buy a property at a cheaper price at open house or auction which can be turned into high profit making investment by renovations and upgrades.
- Real Estate Investment Trusts (REITs) – If someone doesn’t desire to invest directly in the traditional real estate market then he/she can invest in REITs. REIT basically is the surplus or unused portfolio of property assets listed on the Australian Stock Exchange. REITs are a great option for portfolio diversification as well.
- Real Estate Investment Groups (REIGs) – REIGs is the group of private investors and sort of small mutual funds that primarily focus on investing in rental properties.
- Real Estate Crowdfunding – Real Estate Crowdfunding popularly means raising funds for investment properties on a larger scale via social media and internet or online real estate platforms.
These all methods can be utilized for investing in the property. The stock market does not allow a lot of options for investment.
- Simplistic Equity access in property:
Equity is the difference between the value of property at the time of sale and the mortgage value. Equity can be used to refinance the mortgage for other properties and thereby a lot of times it can assist you in creating a strong portfolio without even paying anything extra. Equity value is directly proportional to the value increment of the property.
The compounding impact of equity can literally let you buy a property in cash too in the long run, till then you can keep investing in various properties on the basis of your Equity. If invested wisely higher equity gains can be availed.
- Secures Generations:
Property investment is a very proud possession. This is the type of investment which you can inherit to your next generation and so on. What can be a better Legacy to leave behind than Property?
Surely there are some companies that allow shares to be transferred to the next generation but not all of them do that. In terms of property, if the structure is well formed and all the legal rules are followed then all the properties can be transferred to the heir at your living or after you pass away.
Unlike shares, investment property allows you to secure the future of your next generations as the more the property is held to, the more it appreciates and the more the capital gains and cash flow.
CONCLUSION
So, did you get why investors on a major level are more interested in Property investment? Even if you go through the reports you will find remarkable bounce back of the Real
Estate Market after the turbulence of COVID-19’s grace.
Despite all of its risks, Property investment is undoubtedly one of the safest investment options available in the world provided you pave your way into it backed with safety buffers and due diligence.
These are just a few reasons why investment in property is worth it, we are sure you will find a lot of other reasons justifying the title of this article. Remember the key points and avoid the common mistakes(Link to Common property investment mistakes and how to avoid them) that a newbie investor tends to commit and then you are good to go. After some years spent seriously and sincerely in this field, who knows you could become a part of Millionaire investors?
We hope you found this article informative and further we always like to listen to your viewpoints and experiences hence, let us know and understand that in the comments section. Until next time – keep researching, learning and investing.
