Pros and Cons of Investment in Properties
Property investing is also viewed as less costly than other types of investment. However, though it might sound more simple, there are risks that you need to be mindful of. Here's what you need to think about when investing in property.
Less Volatility – Property can be less risky than shares or other investments.
Profits – If the property is leased, you receive rental income.
Capital appreciation – If the property rises in value, you will benefit from a capital gain when you sell it.
Tax deductions – Most mortgage payments will be covered against rental revenue, plus interest on the loan used to purchase the property.
Physical asset – you're investing in something you can see and touch.
No specialized expertise needed – unlike other sophisticated investments, you don't need any advanced specialized knowledge to invest in land.
Price – Your interest costs and other costs will not be compensated by your rental income.
Interest rates – Increased interest rates would mean higher repayments and reduced discretionary income.
Vacancy – There will be periods where you have to pay your own expenses if you don't have a tenant.
Inflexible – You can't sell your bedroom if you need to get access to some cash in a rush.
Loss in value – If the value of the land falls down, you might end up paying more than the value of the house.
Strong entrance and departure costs – Expenditures such as stamp duty, court expenses and land agent fees.
Diversify your investment
Invest more than just land, because your capital isn't just in one market. If you invest in one market, the exposure will rise and your portfolio will not be diversified. Choose your money and find more investments to help you meet your goals.
- Costs of building in land
- Buying, maintaining and selling investment property can be expensive and can reduce the net return.
- Costs to purchase and sell
Many of the costs involved with the purchasing and selling of the land include:
- Stamp duty
- Fees for conveyancing
- Legal cost
- Fees for searches
- Reports on pest and building
If you sell the house, you will have to pay agent fees, promotional costs and legal fees. You will still have to pay tax on capital gains as the value of the land has risen.
Borrowing the money to buy
If you borrow to buy, you're going to have to pay the interest on the house. Don't depend on rental income to pay your mortgage – there will be periods when your property is vacant.
Many people purchase investment property with interest-only loans, but note the interest-only term would expire within a certain period of time. This means that the repayments will rise to pay the lent balance and interest. See interest-only home loans to see how they operate.
Costs in buying investment properties
The continuing expense of investment assets includes:
- Water & Council Rates
- Building insurance coverage
- Landlord insurance
- Body Corporate fees
- Estate Taxation
- Property management payments (if you are using an agent)
- Maintenance and repair charges
- Tax on investment property
While you will be able to claim tax benefits for costs, you will still have to pay them in advance. You will pay tax on your rental income for positive investments.
Visit the Australian Taxation Office (ATO) to see how tax operates on investment assets.
What to remember when purchasing an investment property
Once you have a property in mind, compare the revenue you expect from your outgoing expenditures. If there is a deficit, consider whether you should fund it on a long-term basis. Often, find out how you should pay any of your short-term costs if you haven't had tenants for a while.
Study the property market to determine how to buy an investment property. Where and what you buy is going to affect your return on investment.
Where to get it
Areas that you're familiar with will take time to investigate.
Look for areas with high growth, higher rental yields and low vacancy rates.
Find out about the upcoming zoning reforms in the suburbs that could impact potential property values.
What to buy
Look for properties with desirable amenities such as a second toilet, a garage and access to schools, shopping and transport.
Consider maintenance costs depending on type of house, age and functionality.
How to buy it
Be cautious of property investment recommendations from service provider groups. Property developers, accountants, lawyers and mortgage brokers can recommend each other's services.
Note this article is not financial or legal advise. Please check with your financial and legal specialist counsel before making any decisions of your own.
For further information about real estate in this area, contact No Bull Real Estate, your most reliable and friendly real estate agents in Newcastle and Lake Macquarie. Buying, selling, leasing for residential, commercial, industrial property, contact your local expert to buy, sell or lease today on 49552624 or https://www.nobullrealestate.com.au