I hope I haven’t put you off property investing forever by telling you about the 10 ugly truths about property investing in my previous post. To balance it out, I’m going to extol the benefits of investing in property and why you should take it up. Just like I did.
Previously, I’ve written about the things that could go wrong when investing in property. To give you a balanced perspective, you should also hear about the merits of investing in property, even if I appear to contradict myself a little.
1. Investing in property is simpler than you think
Despite the initial deluge of paperwork you need to produce and information you need to assimilate, property investing is remarkably simple. There are no complicated steps you need to take. As long as you’ve got your finances sorted out, you can start doing your research to find the right property. If you apply thorough due diligence in terms of getting inspection and valuation, there’s little risk for you to overpay or buy a dud property.
2. In property, you have “guarantee”
Unlike shares, real estate offers you more guarantee that you won’t lose money. Let me show you through an example.
Say if you invest $100,000 in the share market, you have zero guarantees. You can’t even guarantee that the value of your $100,000 portfolio will be the same in 1, 3, 5, 10 or even 25 years.
You can’t estimate the value of your portfolio by adjusting to the cost of inflation. In fact, you can’t even guarantee that the company you invested in will even be around in 1, 3, 5, 10 or 25 years. If your portfolio dropped by 50% in value, you would lose $50,000 of your $100,000 investment and there’s no insurance for that either.
On the other hand, if you invest that $100,000 into property and buy four $100,000 units with a $25,000 deposit on each; you now have $400,000 worth of property and $300,000 in mortgages.
As long as you collect enough rent to cover all your expenses, those four mortgages will be paid off in 25 years. In fact, the exact dollar amount that the mortgages will be reduced by every single year is guaranteed. It’s also easy to calculate.
If your property didn’t grow in value and rents didn’t increase a cent from the day you bought the property, then in 25 years, the mortgages will be paid off and you are still guaranteed to have turned your $100,000 into $400,000 thanks to your tenants.
Even if the value of your property declined by 50% over the next 25 years, you still would have doubled your $100,000 into $200,000. If the property burns to the ground, the insurance company will build you a new one. If your stocks go down in flames, too bad, you lose it all.
3. You have control of your investment
Unlike other investments classes, property offers you with many options in terms of growing the value and income on your property. You can also control where you buy, how you buy and when to sell.
While it’s true that economic conditions play a role in driving property values, its role is much more magnified in the share markets where emotions and news can have a strong influence on values.
4. You have stability
Real estate is less volatile than stocks or mutual funds, especially in uncertain economic times. Even if there are some “corrections” in some Australian markets as we've seen recently, the continuing demand for housing fuelled by strong population growth ensures property prices are supported.
It’s also worth noting that the price drops most people fear are NOT real losses until you actually sell the property. If the property was purchased correctly and generates a healthy cash flow, the investment can be sustained until the price gets back up again.
5. Property is an easy asset to understand
Unlike the share markets where there are complicated terminologies you need to get your head around, real estate is relatively simple. You know what a house, unit or a townhouse is and you don’t need a 60-page prospectus to tell you all about it.
The strategies are pretty straightforward as well. The most important things you really need to know are capital growth, cash flow and yields. There are a lot of articles in this website to help you understand these terms in greater details.
Of course there are also more advanced strategies such as wraps, off-the-plan and flips, but initially, you want to keep your strategies as simple as possible.
The most complicated aspect is probably around mortgages where you need to understand how each loan type works. This is where a good broker will come in handy. If you want to read more about mortgages, check out our sister website www.yourmortgage.com.au for articles relating to this subject.
6. The taxman helps you pay off your investments
You can claim a range of tax deductible expenses through your investment property, which will help reduce your tax bills and improve your cash flow. A good accountant can help you cut your tax expenses by the tens of thousands of dollars, legally through your investment property.
7. Your tenants pay your mortgage
Another great advantage to property investing is that your tenants are paying down your mortgage while you sit and watch your investment grow in value.
8. Property offers predictability
Property is undoubtedly more predictable than other investment-classes. With well-chosen property, you can look out to 18 or 24 months into the future and know which direction the market pressures will be pushing, unlike the share markets where anything could change within seconds.
9. Property is recession-proof
Property with strong cash flow can ride uncertain times such as during a recession for simple reason that it meets a basic need- housing. People will always need a place to live, even during difficult times. They would do everything just to have roof over their heads. They are prepared to forgo other luxuries just to have enough money to pay for their rents or mortgages.
10. Property can make you rich
Real estate makes more millionaires than any other asset classes. Do a simple exercise and count all the people you know of that have become millionaires by investing in the stock market, bonds, commodities, art or mutual funds. Now, count all the people you know of that have become millionaires with real estate. Fortune Magazine found that 97% of all wealth was either created or held in property. Now which one would you bet on?
Nila Sweeney is the managing editor of Australia’s favourite property investment magazine, Your Investment Property. Read her personal blog at nilasweeney.blogspot.com for extra inspiration and motivation.
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Nila Sweeney is managing editor of Australia’s leading property investment magazine, Your Investment Property, Canada’s only property investment magazine, Canadian Real Estate Wealth and Your Mortgage magazine. An active property investor herself, Nila owns a number of properties in Australia and overseas. She has worked as a TV journalist for CNBC Asia and CNN International for more than 10 years and has been writing about the Australian property markets for more than eight years.
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