Should you purchase an investment property...or not?

Buying an investment property is still one of the most popular ways to invest for Australians. It is a great way to diversify your investment portfolio and increase your wealth, but unfortunately, there is a common misconception that investing your money into property will always deliver a positive outcome. While investing in property can definitely secure your financial future, it isn’t always the best option for everyone and can have you being more out of pocket than you were before the investment. Choosing the correct property, maintaining it etc. all takes work.

Below, we look at the pros and cons of owning an investment property so that you can decide for yourself if it is the right investment for your lifestyle.

PROS

1. It is a stable investment

Compared to other markets, property has been proven to be quite a stable investment. Although the property market has it’s ups and downs, it can often be less volatile than something like the stock market. Property has also been shown to approximately double, every 10 years.

2. Positive cash flow

If you can be strategic about the type of property you buy, then you can cover your expenses by renting out your investment property to create a positive cash flow. This money can then be used to pay off your mortgage faster or invest in to something else.

3. Tax benefits

An investment in property can come with great tax benefits. If you are negative gearing (losing money) on your investment property, then you can offset this against your income and get yourself quite a large tax saving. You can also claim things like depreciation on the house, inspections, property management fees etc.

4. Long-term benefits

Property can be a great long-term investment and provide long-term returns. It’s likely that your investment property will go up in value over time, provided you invest in the right area. This means that over time, your cash flow will improve as you increase the rent that is collected.

CONS

1. Associated costs

There are always hidden costs when it comes to property. Of course, you can do all the right things in getting a building inspection, analysing the rental application etc. but there is likely always going to be something that will pop up. There will always be something to fix, a rent payment to chase upon, an unexpected bill.

2. High upfront costs

Unlike other investments, where you can enter into the market for as little as $500, property will cost you a lot more. You will need thousands of dollars to get into the property market and a good track record to obtain a home loan.

3. Uncertainty

With a mortgage to pay for, you need to ensure you can always make the repayments, on time. Changes such as your rental property being vacant, rising interest rates and large maintenance costs can come as a shock and put a strain on your cash flow.

4. Ongoing costs

Investing in property comes with ongoing costs, some that can’t be planned. Things like insurance, council rates, mortgage repayments, renovations, maintenances, legal fees etc. These costs can come as a surprise if your tenants decide to stop paying rent or something breaks in your property that you’re obligated to fix.

Is Property Investment Right for You?

While there are both some very convincing pros and cons to investing in property, ultimately, it all comes down to your personal situation. If you do decide to invest in property, then there are a few crucial things to do beforehand.

• Do your sums – can you really afford it and will you positive or negative gear?
• Find a good property manager that you trust and get a good rate!
• Understand the market of where you are buying
• Get a good mortgage broker and pick the right mortgage to suit you.

If you’d like to some individual advice on how to finance your investment property and become a property investor, then I would be more than happy to have a chat with you to work out the best strategy for your situation.