Property is a common investment vehicle used to grow your wealth and achieve financial freedom. Regardless of the type of assets you invest in, the fundamentals of investing remain the same. Start by formulating clear financial goals and educate yourself in the different types of investments that are out there. This will help you develop a diversified portfolio that will meet your objectives.
As with any investments, you need to have a long term perspective. Buying and holding your property for as long as possible will allow your investments to grow in value. Many investors make the mistake of not thinking far enough. Selling your investments too quickly can also trigger tax implications and unnecessary costs.
How to grow your wealth through property investment?
There’re two main ways to grow your wealth using property. These are:
- Capital growth – This refers to the increase in the value of the property. It can happen over time with inflation and also with increasing demand for real estate. You can also generate capital growth through activities such as renovations, subdivisions, and redevelopments.
- Cash flow from rental income.
How to invest in property?
Investing in property can be done directly or indirectly. Direct property investment means you purchase the property in your own name, your trust, or within your superfund. With indirect property investment, you acquire property through a third party such as managed funds, property trusts, and syndicates. Indirect investments usually require a smaller investment amount and can provide exposure to the broader property market including commercial, industrial and residential real estate.
Advantages and disadvantages of property investments
- Leverage your savings.
- Receive regular income from rent.
- Benefit from potential capital growth over the long term.
- You’re investing in a physical asset.
- It’s less volatile than shares.
- Negative gearing and depreciation provide tax advantages.
- Property value can decrease.
- Good tenants can be hard to find.
- Long vacancy periods drain your cash.
- Requires maintenance and have ongoing costs.
- Investors need to be aware of interest rates – higher rates can affect return on investment.
- Less liquidity than shares – selling your property can take months.
- It’s harder to get your foot into the property market because the cost is high.
- Many investors don’t have diversity in their portfolio – Australians hold a disproportionately large percentage of their investment portfolio in property, particularly residential real estate. This is attributed to the high cost and investor preference.
The cost of property investment isn’t limited to the purchase price. You need to consider the cost of the mortgage and other ongoing costs associated with owning and maintaining the property. These include things like council rates, repairs, insurance, and management fees. When you account for all the additional expenses, the true cost of your investment can be substantially higher than you had initially thought.
9 points on successful property investing
- Have a basic understanding of tax, leverage, and money management.
- Understand the differences between property and other types of investments.
- Set your financial goals and plan ahead.
- Focus on acquiring quality investments only.
- Make sure you can afford it. If you overstretch yourself financially, you place yourself in a compromised situation where you may be forced to sell your investment rather than allowing it time to grow in value.
- Consider tax effective ownership structures.
- Do your due diligence. Take time to study and understand the property market. Look at things like demographics, planning regulations, and rental rates. Thorough research ensures you won’t be paying more than the real value for the property.
- Protect your wealth with adequate insurances.
- Seek professional advice.
The decision to invest in property requires careful consideration. Property is expensive and mistakes will be costly. Speak to Moiler to discuss whether investing in property is conducive to your long term financial plan.
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Ian Moiler Pty Ltd is an Authorised Representative of Count Financial Ltd ABN 19 001 974 625 AFSL No. 227232 which is 85% owned by CountPlus Limited ABN 111 26 990 832 (CountPlus) of Level 17, 1 Margaret Street, Sydney 2000 NSW and 15% owned by Count Member Firm Pty Ltd ACN 633 983 490 of Level 17, 1 Margaret Street, Sydney 2000 NSW. CountPlus is listed on the Australian Stock Exchange. Count Member Firm Pty Ltd is owned by Count Member Firm DT Pty Ltd ACN 633 956 073 which holds the assets under a discretionary trust for certain beneficiaries including potentially some corporate authorised representatives of Count Financial Ltd. The information on this web page is not advice and is intended to provide general information only. It does not take into account your individual needs, objectives or personal circumstances.