Investing in property is an effective wealth creation strategy that tens of thousands of Australians use to get ahead financially. While managed funds, shares and stocks also offer opportunities to grow your wealth, some experts point to real estate as your best bet in the current market.
There are plenty of reasons to invest in property, including the fact that you’re buying a tangible asset – bricks and mortar – which will be always be in demand. Stocks and shares, on the other, can lose all of their value in a day; we’ve all heard the horror stories, and in fact some of us have experienced them first hand.
But people will always need a place to live, which makes property a more attractive option. There are four more compelling reasons why should be browsing the real estate listings, according to Brisbane-based Grow Consulting Group.
Receive dual income
Unlike other forms of investment, property provides two streams of income, explains Ayda Shabanzadeh, managing director of Grow. “When you purchase a property at today’s market value, while you hold the investment it is likely to increase in value over time, due to a favourable demand versus supply situation, a strengthening economy, inflation and population growth,” she says. “However, you don’t need to sell the asset to make money. You can continue to earn income while you hold it, through rent – a great source of passive income.”
Leverage your risk
Property is a low-risk investment option when compared to shares and stocks, which are heavily linked to the national and global economy, and can be extremely volatile. “Property is much easier to leverage when compared with other investment options,” Shabanzadeh says. “Banks are generally comfortable to lend more for property as they recognise it as a low-risk investment option, and they’re also confident that they can recoup the cost should they need to.”
Maximise your tax refund
An investment property is tax deductable, so the Australian Taxation Office (ATO) will allow you to claim a tax deduction for most of the expenses you incur when buying and managing an investment property. If you experience a financial loss – meaning that the annual costs of owning your investment property exceed the annual rental income you receive – you can offset these losses against your income tax.
“This is a strategy known as negative gearing,” Shabanzadeh says. “Normally, you receive this tax amount back at the end of the financial year when you complete your tax return, but it is also possible to receive this money in your regular pay: in other words, you can receive the tax saving during the course of the year to provide better cashflow.”
“While property values sometimes fall slightly in the short-term, over the long term, it always increases [in value] as demand for housing will continue to grow,” Shabanzadeh explains. “It is also less stressful as investors don’t need to keep up to date with daily share markets – they simply hold their investment and reap the rewards.”
To help you get started in building your property portfolio, read Your Investment Property magazine, Australia's most influential property investment magazine. Each month, YIP features articles on investment strategies, hotspots, tax, financing as well as legal issues.
This month, Your Investment Property Magazine looks at buying properties that will outperform the market and the hottest CBD suburbs under $300K. Check out the latest issue, out on sale now!
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