5 reasons why property investment is the way to go
Property investment is lucrative, has lots of tax deductions involved and is relatively straightforward. Perhaps that’s why it’s so popular.
There are many different types of assets out there, but it seems real estate is one of the most popular. As CoreLogic RP Data’s Cameron Kusher reported back in 2013, Australian Taxation Office figures from 2010/11 showed nearly 2 million Australians owned an investment property
Unlike currency or equities, values don’t go up and down in the blink of an eye, there are no margin calls that can leave you at risk and you don’t need an encyclopaedic knowledge of the market.
Why exactly is investing in real estate so popular among Australians? There’s no way to know for sure, but here are five reasons that may explain this phenomenon.
- It’s relatively straightforward
This is not to say that property investment is easy: You still need to do the research to find the right area and the right piece of real estate that will grow in value over time. On top of this, you need to speak to an accredited mortgage broker in order to make sure your investment loan is structured properly.
But it’s certainly true that property investment is less complex than other types of assets. Unlike currency or equities, values don’t go up and down in the blink of an eye, there are no margin calls that can leave you at risk and you don’t need an encyclopaedic knowledge of the market.
- Your investment is likely to grow in value
If you have a property, then chances are its value will increase the longer you hold on to it. There’s only a finite amount of land out there, after all, so that block is going to be more and more in demand as time goes on.
And the longer you hold it, the more it tends to be worth. The most recent RP Data Pain and Gain report found that homes that sold for more than double their original price were held for an average of 16.8 years.
Given enough time, even this small plant could sprout into a large oak.
- There are loads of tax deductions
When you invest in real estate, you’re putting a serious amount of money into the asset with the hope that it will pay off down the line. Not only are there the upfront costs – such as the deposit, stamp duty, legal expenses and inspections – but there are the ongoing costs involved in running a rental, such as taking care of repairs and maintenance and advertising for tenants.
Fortunately, everything from the interest on your investment loan to the petrol you use to drive to your property to inspect it can be deducted from your tax bill. According to the Australian Taxation Office, 2012-13 saw individuals claim a total of $22.5 billion of rental interest deductions, and nearly $17 billion in other rental deductions.
- You’ve got multiple tax strategies
One of the debates in the world of property investment is that of positive gearing versus negative gearing. Positive gearing is simply when the expense of holding on to your rental is less than what you make from owning it. Negative gearing, meanwhile, means that if you make a loss on your investment property – because the cost involved outweighs the rental income you’ve received – you can claim a tax concession.
The latter can be both a deliberate strategy or a tool if your rental is still finding its feet and you need a boost. A report from the Property Council of Australia and Real Estate Institute of Australia found most of those claiming such a loss earned less than $80,000 a year. The important thing to note, however, is that each approach has its pros and cons – the important thing is using the strategy that works for you.
- You can see it, smell it and touch it
Unlike a lot of other investments, which includes your superannuation, property is a tangible asset that you can physically interact with. There’s something comforting about owning an asset that isn’t simply numbers on a piece of paper but a real object you can feel with your hands. While this may not be the number one reason to start investing in property, combined with all the others, we think it all makes a pretty good case for it!