Investing in property
Investing in a property can be a great means of building your wealth and is a tangible addition to your assets.
But before you decide whether investing in property is for you, ask yourself the following questions:
Is investing right for me?
There are various pros and cons of investing in property that you should take into account. On one hand, property is often considered less volatile than shares and you can earn good income from rent and benefit from capital growth, if your property increases in value over time. On the other hand, interest rate fluctuations will have an effect on your repayments and rental income may not cover all of your expenses, especially as there may be times when you don’t have tenants at all and you need to cover all the costs yourself.
At the end of the day, buying a property is a big commitment and should be an educated decision. Consider the income and expenses you will incur when buying and maintaining a property and talk to a financial advisor to ensure you are prepared for the ongoing financial commitment.
Do I have the funds I need?
Investing in property can be costly. You need to be aware of the costs associated with buying, such as stamp duty, legal costs, building and inspection reports as well as the costs of managing an investment property including council rates, insurance and possible body corporate fees.
A manageable home loan can help you acquire the right investment property. It is best to have pre-approval for a loan before you start seriously looking so that you know what you can afford and understand what your ongoing repayments will be. Our Premier Package Home Loan is available for investors and offers the flexibility of Interest Only and Fixed Rate options that are often suitable when investing in property.
Borrowing to invest is called ‘gearing’ and should be managed wisely. Negative gearing is when your income from an investment is less than your expenses. When it comes to an investment property, this refers to the rental income being less than the interest and other associated expenses. This loss may be made up with a capital gain if the value of the property increases. A loss may be used to reduce your taxable income.
Positive gearing refers to income from an investment being higher that interest and other expenses. In this situation, you will be making a gain but you will need to pay tax on the additional net income.
When it comes to gearing, it is important so consult your accountant and refer to the Australian Taxation Office for more information. Never commit to a loan that you will struggle to pay off, because the costs could outweigh the profits brought in by your investment.
What property should I invest in?
A property can be a valuable addition to your assets, but you need to choose the right one. This will largely be dependent on your budget; an investment property should contribute to your wealth, not tempt you into an unsupportable financial position. Decide what kind of property you want to invest in, be it apartment or house or even a business space, and look for features that will appeal to as many people as possible. Choose the location carefully. You want a high growth suburb that is affordable to buy into, but which still attracts high enough rental returns to justify the expenditure.
If you are thinking about investing, we can help you manage the finance so you can find the right property. Our consultants are available to talk you through your investment options on 1300 654 822.