Good reasons for investing in real estate
1. It is a (relatively) safe investment
No one goes into investment intending to lose money and the well-known phrase ‘safe as houses’ gives voice to the reason property investment is still key to investment strategy. Melbourne propertycontinues to gain value, outperforming traditional rival Sydney and according to research by AMP, Australian property value has increased at a rate comparable to that of the share market since 1926. Investment in the share market affords much more volatility and requires a great more expertise and specialised knowledge. Investment in shares? Snakes and ladders. Investment in property? Safe as houses.
2. It’s tangible
When you invest in property, you have a physical asset. One that you can touch and see. It doesn’t just exist on paper or float around in some cloud. A property is there for you to look at.
3. It can lead to wealth accumulation
Property investment is an established step in the accumulation of further wealth. It offers leverage by providing a tangible asset that can then be used as security for further investment. Lenders are likely to lend more against the value of the property than the value of a share portfolio. As the capital growth of the property increases so too does potential borrowing power. In building a property portfolio it is this borrowing power that allow the portfolio to expand.
4. It provides ways for tax reduction
A key benefit of property investment is the tax breaks that can come from being the owner of rental properties. The Australian Taxation Office (ATO) allow investment expenses to written off against tax. This lowers income and therefore the tax bill but also offsets any gap between the rental income and property costs.
The ATO also allows any property owner obtaining income from their property to claim a depreciation benefit. As a building gets older and the fixtures and fittings within it age, they depreciate in value. Property owners can claim this depreciationas a tax deduction.
Another tax benefit of property ownership is its relation to capital gains tax (CGT). If you sell your own residence, you do not pay any CGT on the profit. If it is an investment property you are selling, and you have held that property for more than 12 months, you pay CGT on only half of the profit. These three tax benefits continue to make property investment an affordable option for many Australian families.
5. It can assist children get into the property market
As the property market continues to grow, many parents have concerns for their children ability to buy a house. They worry that they will never buy and be permanent renters. But when considering long-term investment, it doesn’t just involveone lifetime – investors can also think about their children, too. Property investment today is one method mums and dads are using to provide future assistance for their children. A property purchased today can provide future borrowing power that will enable parents to assist their children with a deposit or purchase when they need it most.
6. You can take control with a self-managed superannuation fund
While it may seem they are only a recent innovation, self-managed superannuation funds (SMSF) have actually been around for a while. It has been the changes in borrowing laws that has brought SMSFs to the fore, as it is now possible to invest in property through superannuation. The best part of buying property through a SMSF is its taxeffectiveness. The sale of a SMSF property attracts a capital gains tax of only 10%; however, it reduces to zero for over 60s. The set-up of a SMSF is quite complex and would require advice and assistance but it can be a realistic method of property investment and securing a strong financial future.
7. It is a solid strategy for the future
Property investment can provide immediate reward but is also a solid strategy for the future, and not just with regard to financial benefits. Bu utilising some of the tax strategies discussed earlier, it can be possible to purchase a residence in a specific neighbourhood, rent it for a number of years and then occupy it at a later date when it is more financially viable to be a personal residence. Structured correctly, this could even provide a first home.
8. It is more stable then securities
Historically, the property market tends to have greater stability than the stock market. There are a number of reasons for this, but it is largely due to the fact that firstly, property purchase requires a greater effort and secondly there is far more regulation in property requiring much more paperwork and associated cost. Short-term speculators jump on stocks and shares, which sell and trade quickly. The property market requires time – this reduces market volatility. Even during crashes, crises and recessions property market prices will hold their own or at least level off.
9. It can fulfil a desire!
Fast cars are wonderful – even better is having the classy garage to drive them into! Property investment and property tradingcan provide for a wider selection process; selection is not necessarily based on personal needs but market trends. A ‘trophy property’ in a sought after area is attractive to people who may not have the incentive to purchase or invest. As well, as we have discussed, the better the property the better the tax benefits and the greater the borrowing power, all of which can provide the ability to build a portfolio of ‘trophy properties’.