Property is one of the most loved asset classes in Australia, and the state of the property market is always in the press, whether it’s going up or down.

This week we look at the whys of investing in property.

Why invest in property?

Bricks and Mortar

Many people invest in property because they like the feeling of security that comes with having a tangible asset.  They also like the ability to see the asset for themselves.  It is a lot easier to conduct due diligence when you are purchasing an investment property, which you can visit and inspect, than it is to conduct due diligence on a company, where you are reliant on the information that the company provides, and your ability to ask the right questions to analyse the stock. 

Leverage

Most people borrow money to invest in property, meaning that they slowly build up ownership of an asset that they could never afford outright.  It is also possible to borrow to invest in shares, however property borrowing is less risky as you are generally not subject to  margin calls.

Income

Another benefit of investing in property is the income that it provides, in the form of rent.  Rental income is a common feature across all types of property investment, whether it be residential, office, warehouse or retail.

Capital Growth

In addition to rental income, property also offers capital growth, through appreciation of property prices.  Over the last 20 years, property has on average returned 10.5% p.a, this is the total return and includes both income and capital gains.

Tax Benefits

Certain kinds of property investing comes with tax benefits, namely negative gearing.  If you purchase a property for investment purposes, you are able to deduct the cost of managing the property and owning the property, including the interest on your mortgage.  This results in a reduced taxable income and can make property investing more affordable.

Next week we look at how you can invest in property, there are many more options that simply buying a house!

The information in this blog is of a general nature only and may contain advice that is not based on your personal objectives, financial situation or needs. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs before acting on the advice.