Every type of investment has pros and cons. For Australians, investing in property has long been a popular choice. Whether you’re an aspiring or existing property investor, it’s essential to understand the benefits of owning an investment property so that you can make the most of your rental:
- Rental income
You’ll earn rental income each month your property is tenanted. Depending on the size of your loan repayments for the property and how much rent you receive, your rental income may cover some or all of your expenses for that property (loan payments, property management fees, insurance, etc.).
If your property is cash flow positive, your annual rent will exceed your total annual expenses after tax deductions and depreciation. If your investment property is cash flow negative, the rent doesn’t cover all costs so you’ll have chip in some money yourself. There are pros and cons to both scenarios – you should speak to a financial adviser for advice about which approach is most appropriate for you.
- Capital growth
Capital growth is one of the main reasons people invest in real estate. Over the past 25 years, Australia’s median house value has increased by 412% – an average annual growth rate of nearly 7%. While property prices may not always increase in the short term (for example, values recently declined for around 18 months before picking up again in June this year), the long-term trend is that those who make smart decisions when buying an investment property enjoy significant capital growth over the medium to long term.
- Tax benefits
Owning a rental property allows you to take advantage of some significant tax benefits. Many of the costs involved with owning an investment property – such as advertising for tenants, property management fees, the cost of repairs and maintenance, and interest on your loan – may be tax-deductible. You can also claim depreciation – the natural wear and tear that happens to a building and the assets inside it over time – so long as you have a depreciation schedule.
- No specialist knowledge is required
Compared to other investment options like shares and foreign investment trading, you don’t need specialist knowledge to invest in property. However, it’s important to do your research as not all investment properties are created equal. Where and what you buy will affect your return on investment – look in suburbs where growth is expected, rents are high, and vacancy rates are low compared with the wider market. It’s also wise to target properties that will appeal to more than one type of tenant.
- Ability to use the property’s equity to buy more investments
Equity is the difference between the current value of your rental and how much you owe on it. As the value of your rental property increases, your equity grows too. You may be able to use this equity to buy another investment property or improve your existing rental. As with any major financial decision, you should speak to your financial adviser about whether leveraging the equity in your investment property to buy more property is a smart choice for you.
At Greg Hocking, we take a strategic approach to working with our landlords to maximise their return on investment. Contact your local office today for more information about the Greg Hocking difference.