Property values have skyrocketed in the past few years in Australia.
While that can be attributed to a large number of factors, one of the most important of them is that more and more investors are realising the benefits of investing in property over other asset classes.
So why is property fast becoming the darling of investment vehicles for many Australians?
Here are some reasons:
1) Value Appreciation
Australian property has a strong track record of appreciating over the long term. While there may have been speed bumps and corrections along the way, there is no doubt that Australian property is one of the most solid performers of value appreciation over the long run.
However, a word of caution: speculation in the short term growth of property values may not be a wise investment choice. There are lots of odds stacked against the short term investor, including market corrections, tax implications and transaction costs.
2) Leverage
A great thing about property investment is the fact that it can be done through leverage. This allows you to be able to use a small amount of money to invest in property. This is a huge benefit especially if you lack the full investment capital.
If you do it wisely and with the proper professional advice, leverage can be a massive game-changer to your wealth accumulation.
How?
Well, say if you bought a $500,000 property 2 years ago with a $25,000 deposit (95% loan), and property values have increased by 20% in these last 2 years.
So the current property price is $600,000…your gain would be 20% right?
But in reality, your total cash investment was a mere $25,000, and you made $100,000 in equity growth. That is a whopping 400% cash on cash return!
It’s exciting, but remember leverage is a double-edged sword so make sure you get the right advice before gearing up on a loan.
3) Tax Benefits
This means you can use your ‘losses’ in up keeping the repayments on your property to reduce your tax liability.
In essence, it is like the tax man helping you to pay for the upkeep of your property.
Used well, this is a powerful wealth building strategy for savvy full-time employees and business owners to reduce their taxable income legally.
Smart investors can also use a depreciation schedule to further reduce their tax bill legally.
Depreciation is the write down of asset values in your property, these may be claimed as losses each year in your tax bill.
You won’t get such benefits in other asset classes like shares.
4) Rental Income
Property can be used to generate rental income for you. With property, you remain assured of the availability of tenants. Your income also grows over time since rental value appreciates.
Therefore, you have the double combined growth of property value and rental growth.
This has a powerful compounding effect for your wealth building.
Other asset classes, such as shares, don’t have a guaranteed increase in dividends each year. In fact, they will vary based on the company’s performance.
Conclusion
Property investments are great investment vehicle compared to many other types of investments. Over the longer term, well-chosen property in a good location that’s positioned for good growth is one of the best investments you can make.
That’s why investment property must be the cornerstone of every good investment portfolio.
