I spend very little time convincing people that they should invest in real estate.
It’s more fun helping people to achieve their dreams than it is to try to change people’s opinions. In the same way I’m sure the best steakhouse in town would rather spend their time delighting meat-lovers than persuading vegetarians to try meat.
So I won’t try to speak for you, but here are the reasons why I personally invest in real estate…
Wait, before we start – what’s more important than real estate?
I didn’t write this article to analyse and compare the hundreds of different investment options available, or to convince you to sell all of your shares because “property is the greatest investment in the world”.
The truth is, if you are already investing a portion of your hard earned money into something (anything) to ensure you’re regularly putting money to work for you, then I commend you. You’re already ten steps ahead of everyone who is too busy arguing over ‘which investment is best’ and never actually investing in anything. So well done!
I like to invest in real estate because it ticks all of the boxes I need for choosing a solid wealth-building strategy. They include:
1. Opportunity for Capital Growth
If your goal is to create wealth, then capital growth is without a shadow of a doubt the most important consideration when buying an investment property or growing a portfolio.
Here’s an example of how capital growth can affect your property investment:
Purchase a property for $350,000. After 10 years, it will be worth:
- 5% capital growth p.a. $ 570,000
- 10% capital growth p.a. $ 907,000
- 15% capital growth p.a. $ 1.4 Million
The size of these gains should make it clear to you why my primary strategy is to hold on to as many properties as possible over the medium to long term and allow capital growth to do all the hard work for me.
2. Low risk investment
Property is generally considered a low-risk investment because of the steady and stable returns it has delivered since, well, forever. And it is generally less volatile than shares. Property is also a very ‘forgiving’ investment; even if you end up purchasing the worst house, in the worst street, in the worst area, it is still highly likely that it will increase in value over time. You can also mitigate your risk by insuring against most threats; fire, flooding, or a tenant breaking a lease or damaging your property etc.
3. Excellent security
Banks and lenders see real estate as a “safe as houses” investment. Think about it: they are more than happy to lend you 90% (and in some cases 100%) of the value of a property, which equates to hundreds of thousands of dollars (if not millions of dollars) in exposure for the lender, using the property itself as their security. These same banks and lenders are not so keen to lend you large sums of money if your intentions are to play on the stock market (unless of course you use your house as security!).
4. Great tax advantages
A smart investment decision should never be based wholly and solely on tax advantages, however the tax benefits of property investing are a nice little bonus. If your particular investment strategy is negative gearing, and you purchase brand new properties direct from a developer for example, your tax credit will be considerable, and will go a long way towards making that property investment you’ve always wanted a lot more affordable. A new property is best from a tax point of view, but older existing properties still have significant tax advantages.
5. Passive income
In addition to providing capital growth and great tax advantages, don’t forget that your investment property is also earning you a weekly income from rent! This rental return is going to add to the overall returns of your investment. It is going to cover a large amount of the costs associated with your property while you are building your portfolio, and eventually by the time you retire (or decide to quit your job and live off your property portfolio), this rental return will be providing a healthy positive cash flow for you to live on.
6. Control of your investment
I don’t know about you, but I’m a control freak. I like property because, unlike some investments, you are in full control of your investment – you can make all the decisions and have control over your returns.
Property is a tangible asset that you can see and touch, and even if the absolute worst market conditions were to occur all at once, you still own a house and you have plenty of options. For example, you can always roll up your sleeves and create your own capital growth with a renovation or development; you can increase the rental return to increase your own cash flow; or you can borrow against the property to free up a lump sum of cash if you need it. You are in control.
Compare this to the stock market: when the stock market crashes, those ‘solid blue chip’ companies disappear overnight, and so does your money.
How to make it happen for you
If property investment is in your plans, visit our property investment page where we have a range of resources and services for removing the barriers that have held you back from investing to date (such as financial readiness, finding properties, and making a purchase).
Andrew Clough | (07) 3510 2122