Here are my top 10 reasons why investing in real estate is a good idea:
- Housing is a basic human need – everyone needs a house to live in, be it rented or being purchased, even during difficult times. People would do anything just to have a roof over their heads. They are prepared to forgo other luxuries just to pay for their rents or mortgage. A renter would help you pay much of the investment, while you sit and watch it grow. If you’re getting decent rental income, you’d be able to ride out uncertain times, such as a recession.
- It’s tangible (& won’t disappear overnight). Everyone in the suburb believes their home is valuable and worth something.
- 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 50-page prospectus to tell you about it.
- Less volatile – Real estate’s illiquid nature makes it less volatile than stocks or managed funds, especially in uncertain economic times. The continuing demand for housing fuelled by strong population growth & income growth ensures property prices are generally supported. Also, 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 picks back up again.
Propertyoffers predictability – Property can be 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.
- More leverage – Banks are willing to lend a high amount (up to 95%) against the
right typeof property. For a simplistic example, if you purchased a property for$400,000 you could put down a 10% deposit and borrow 90% from the bank. If that property increased in value, even though you only contributed10% of the purchase price, you’d still get all 100% of the growth. Cheapestform of finance – Residential loans have the lowest interest rates. This means you couldhave property exposure, and recycle the money into other assets to makeevery dollar work harder for you.
- Ability to influence its value (compared to other assets) – You can boost a property’s rent and/or value significantly via cosmetic renovations.
- Australia’s Number One Tax Write Off – There are 100,000s of homeowners over recent times that have seen huge gains in the value of their home. The way the tax system works in Australia is that it is entirely tax free. You can work hard and pay 40-50% tax on your income but alternatively own a home and be $100,000s better off and not pay a cent of tax.
- Historical trends – Despite all the “economic calamities” over the last 40 years from the Cold War to Asian financial crisis, tech bubble, GFC etc., Australian capital city house prices have generally trended up:
If you’re buying property for the longer term, the current buying climate (Australia-wide) is certainly one of the best I’ve seen in my career as a property buyer’s agent. The credit-induced downturn of late may turn sooner than many expect, given the bank regulators are currently “throttling” lending, coupled with the low interest rate environment.
If you know how to give yourself the best chance of growth – know what to look for, not just locally but also nationally – you could outperform the market averages. I hope this article has inspired you to take that confident next step towards property. Happy house hunting!