Buying an investment property is one of the best decisions you will ever make. In fact, property investment is the most preferred form of investment in Australia. An investment property can help you to grow your wealth and to diversify your assets. You can also enjoy many tax benefits if you manage your investment well. If you’re considering rental property investment, here are some great reasons why you should do it.
Whether you want to increase your wealth or to plan your retirement, a savings account will never provide enough returns for a comfortable lifestyle. Yes, it is a good place to put your money, but even high-yield savings options – like a money market account or a certificate of deposit – can never give you a great return. A real estate investment, on the other hand, can double or triple your equity in just a few years. The share market is also a good investment option, but not as good as real estate. While it outperforms other investments year after year, it is volatile at best and filled with ups and downs.
Every investor knows that owning assets that generate income is always better than owning ones with expenses. If you buy a good rental property, you’ll never run out of renters. In Australia, there is an ongoing housing shortage. According to the National Housing Supply Council, there aren’t enough homes built by the private and public sectors to meet the current demand. As home prices rise, the demand for rental properties keeps going up. What does this mean for rental property investors? More money in the pocket. While residential and rental properties both need maintenance, you can still earn income if you own a rental property, even after paying for expenses.
In layman’s terms, leverage means you invest a small amount of your money and borrow the rest from a lender – as much as 20 times more. A ‘highly leveraged’ property is one which has been purchased with more debt than equity. Most skilled property investors do not use their personal funds to buy rental properties. Some own many properties but have never used their own money to buy them. They have mastered leverage and continue to buy multiple investment properties. The benefits of a leveraged purchase are much more than those of an unleveraged one.
Rent increases are influenced by market forces which are in turn impacted by the demand and supply of specific areas and properties. You cannot increase rent simply because a tenant has asked for maintenance or repairs. There are laws protecting both tenants and landlords which state that rent can be increased but must be reasonable. If demand for rental properties surges and the current market rents go up, you can give your tenants a 60-day notice, increase the rent, and earn more income. Keeping the rent at market level is part of your job as the rent you collect influences the value of your property.
There are many tax benefits that come with owning a rental property. If you buy a property and hold it for more than one year, you will get a 50% capital gains discount when you sell. Capital gains tax is the tax charged on profit from a property sale. If the property is negatively geared, you can enjoy tax advantages each year. Another huge tax advantage is depreciation. This can often be $8,000 to $12,000 in a single year based on a new construction investment property.
While every property investor wants to see his property appreciate, rental property owners place little value on appreciation. Their main goal is cash flow. Most buy houses with positive cash flow which start generating income as soon as they are rented. If home values plummet, they are not affected because they still earn incomes and don’t need to sell the properties. Rental properties can put money in your pocket and help you to grow your portfolio at the same time. If you want to build wealth significantly over time, look for a property that offers high rental yield and strong capital growth.
For the longest time, rental property investment has been a popular choice in Australia. Property is an asset class that has produced good returns for numerous investors time and again. It can be said that property has made more people wealthy than shares. What’s more, property can grow the wealth of small investors.