10 Reasons to Invest in Property
Remember, there’s nothing wrong with seeing what successful people do and applying those principles to your own life. Wealthy people have used real estate investment profitably, and there is no reason why ordinary working people should not also accept the challenge to grow their asset base and overall wealth using property.
Property investment is not just for the wealthy. It doesn’t really take large sums of money to get involved in real estate. This is because banks will lend you up to 80% to achieve this goal. The amount banks will lend differs from person to person and is based on their individual financial circumstances. Most Australians with a steady job and a little capital behind them can afford to buy investment properties. Ask us how ? At Supreme we are happy to assist people through this qualification process.
It’s often said that residential real estate offers the security of ‘bricks and mortar’, but let’s take a closer look at what is one of the safest and potentially most profitable investment markets.
You never hear of houses ‘going broke’ do you? But lots of companies have gone broke. Even companies previously considered blue chip have gone broke. Yet even allowing for the ups and downs of real estate values that we hear about, the underlying trend of property prices in the major capital city residential markets has been steady growth.
You don’t have to believe me when I say that residential property is a secure investment. Just ask the banks. Banks have always recognised property, and especially residential real estate, as an excellent security. The reason they’ll lend you up to 80% of the property value, is that they recognise property values will continue to improve over the long-term. In fact, the entire Australian banking system is underpinned by the continual growth of residential property.
But the really special feature of the residential investment property market is that owner-occupiers, that is people owning or paying off their homes, own about 70% of these investment properties.
This means the majority of the market in which we invest does not act according to normal investment criteria or motivation. If times get tough the majority of homeowners don’t panic and rush to sell, their residential property, which differs in other sectors such as the share market. If there is a “share market crash – eg 1987 “and more recently Global Financial Crisis – share prices reduced dramatically, but the property market does not always suffer a similar decline in value!
So while property prices do fluctuate over time, affected by supply and demand, the large homeowner market will always underpin property values.
Another factor that adds to the security of residential property as an investment is that you can insure it against some of the many risks for example, Insure the building against fire damage, Insure yourself against the tenant leaving and damaging your property or breaking the lease.
The rental income you receive from your investment property allows you to borrow and gain the benefit of leverage by helping you pay the interest on your mortgage. Over the years the rental income received from property investments has increased at a rate that has outpaced inflation.
Will this continue in the future?
Statistics show that, due to many reasons, the level of Australian home ownership is slowly decreasing. There are a number of reasons for this but, in particular, as property prices keep rising, fewer people are able to afford their dream homes. This is compounded by higher rentals meaning that many first home buyers have been hit with a double whammy – making the great Australian dream of owning a house just that for many – a dream.
We know that the both the Federal and State governments are having difficulty providing public housing, which means there will be plenty of opportunities for landlords to make good money in residential property investment, particularly if you own a property that will be in demand by tenants of the future.
Good capital city residential property has an unequalled track record of producing high and consistent capital growth. Over the past 25 years the value of the average property in all capital cities has usually doubled in value every 8 to 10 years. However, in the short-term the picture is much more uncertain and confused, and at times capital growth stops and even reverses, as we saw in the early 80s, the early 90s and in some areas in the most recent slump we experienced in 2008.
While all our capital cities growth have averaged growth of around 8-10%, compounding each year over the last 25 years, these are just averages. The better your property selection – where you buy, what you buy, how well you negotiate and how you finance your property investment – the better your returns could be.
Sure - you need some of your own money – Supreme does not believe in nothing down deals, but the ability to use leverage with real estate significantly increases the return on your investment capital and, importantly, it allows you to consider a substantially larger investment than you may have thought possible.
Property is a great investment because you make all the decisions and have direct control.
Property investors are able to take advantage of a range of tax benefits including tax deductions and depreciation allowances. We encourage all our clients and potential investors to obtain individual taxation advice from their own Tax Accountant.
There are many, many ways you can add value to your property, which will increase your income and your property’s worth.
Unlike most other investments, when real estate goes up in value you don’t need to sell in order to capitalise on that increased value. You simply go back to your bank or mortgage broker and get them to secure a new equity release that allows the opportunity to continue to further property invest.
