Finding the right commodity, or company to invest in is a big decision, but it doesn’t have to be a hard one. We all know that investing in property is a fantastic way to build your investment portfolio and work towards financial independence. While property investing has been a strong form of investment for many generations now, many people may not realise just how beneficial or powerful property really is.
If you’re thinking about investing in real estate and are considering all of the benefits of building a property portfolio, we can help. Property investing has the ability to provide you with the life you have always dreamed of living if you are able to take advantage of the many perks of being a property investor. Find out all you need to know about the power of property here.
Choosing the right property is key
Choosing the right investment property is essential when it comes to investing in real estate. Understanding what it is that people are looking for when they’re renting, the condition of the home, the potential for capital growth, the interest rate environment (if you’re needing to finance the property), the outlook and desirability of the suburb and what amenities are nearby can have a significant impact on how successful your investment property is.
While investing in property is considered to be one of the less risky investment options, there is still the possibility of choosing a less-than-ideal property that you might struggle to make any profit on. Before committing to any investment property, always do your research and learn about the suburb that you intend on buying in. The more you know before you purchase, the better prepared you will be for any and all eventualities.
The top benefits of investing in property
Investment properties are undoubtedly an excellent way to help make your money work harder for you. When it comes to property investing, there are many benefits that should be considered when deciding if a property is the right investment option for you. While being a property investor is not always the easiest path, the rewards are numerous for those who do it right.
Property isn’t only a great way to start building some serious wealth, but it has a lot of other fantastic benefits as well. The following are some of the top reasons why many investors believe that property is one of the best ways you can invest your money:
Build wealth
When it comes to investing in property investment and building a real estate portfolio, building wealth is definitely one of the top benefits that will come to many people’s minds. Building wealth with the help of property is often a simple equation.
As you successfully pay off your mortgage and reduce the balance owing to the lender, the more of the asset you own outright. Combine that with growth in property values generally, this contributes towards your net worth and overall wealth. This equity can be leveraged to purchase more investment properties and works to build your real estate portfolio. By renting out your investment properties, your mortgages are being paid down by tenants and your wealth continues to build.
Property can help boost your cash flow
Not only is property investing a fantastic way to increase your overall wealth and net worth, but it can also help to create reliable cash flow that you will have immediate access to as well.
Cash flow can be described as the net cash generated from a real estate investment after all of your property expenses such as mortgage payments, land taxes, council rates, water rates insurance, property management fees, maintenance costs and operating expenses (and income taxes) have been paid.
The cash you have left over is yours to do with as you will. Many people choose to put it towards another mortgage, while others may put it into a rainy-day account for the property. Regardless of what you choose to do with the money coming in from the investment property, one of the key benefits of real estate investing is the ability to generate cash flow that can be utilised to continue building your wealth.
Unlike many types of long-term investments, real estate often provides returns and a steady cash flow in a relatively short period of time. Many investments such as stocks or bonds can often take years to see any kind of return. With property, your cash flow can begin almost as soon as tenants move into the property and begin to pay rent.
With the right plan and enough properties, your cash flow will continue to grow over time, which can have a significantly positive impact on both your investment portfolio and your quality of life.
Property is an investment that appreciates
The value of property tends to increase over time, and with a good investment, you can turn a decent profit if you decide to sell your investment property in the future. Additionally, rent will also tend to rise over time, in line with the increasing value of the property. This can also help to generate a higher cash flow.
While there are certainly periods where the value of some properties may decrease, this is often against the norm and it isn’t unusual to see the markets bounce back fast. Investors who take care of their investments and keep them well maintained, and are willing to stick it out for the long haul, can see their real estate investments appreciate and gain in value over the years. There’s a reason why many people will invest in real estate early to fund their retirement.
Numerous tax benefits available
Real estate is a great way to take advantage of some of the many Australian tax benefits that are available to property owners. Many of the property expenses that investment property owners have are tax deductible, which can help to offset some of the expenses you occur when owning and renting out property. Costs such as advertising your property to prospective tenants, maintenance costs and interest on your mortgage are just some of the costs that can be deducted from your gains.
Many investment property owners will also take advantage of negative gearing if it applies to their property. Negative gearing occurs if the rental income you are earning from your property is less than your expenses of owning and maintaining the property. If this happens, an investment loss can occur, which will often result in a reduction of your overall taxable income. This reduction often results in you owing less Australian taxes or if you have other taxable in come in Australia, potentially, the loss on your investment property can reduce your overall taxes, or potentially assist you to generate a tax refund.
Helps diversify your portfolio and reduce your overall risk
Anyone who has been investing their money for any length of time understands that a diversified portfolio is incredibly important to ensure that your risk levels are as low as possible. Investing in real estate is a long-term investment plan.
Property is often perceived by many, to be a safer risk compared to other investment options due to the overall stability of the market and the general appreciation of the asset. Other investment options such as stocks or bonds can and often do fluctuate and tend to have a higher level of volatility. The higher the volatility of the market, the more likely the chances of losing your money are.
By diversifying your investment portfolio with real estate, you can minimise any risks and focus on building your wealth over the long term.
Real estate leverage
Real estate leverage is a huge benefit to anyone who is planning on buying an investment property or building a real estate portfolio. Leverage enables you to utilise borrowed capital i.e., a home loan to purchase an asset that costs more than what you have available. For example, buying an entire investment property with a 20% deposit. Due to the fact that real estate is a physical asset, it can be utilised as security or collateral against the loan, therefore increasing your borrowing capacity.
This enables the purchaser to put more money into purchasing an asset or assets than they otherwise would have been able to, which creates the potential for increased gains. There are few, if any, other investments where you can purchase 100% of something with only 20% of the purchase price.
Passive income
For many investors, the potential passive income of the property is a huge draw. Most investors purchase an investment property to rent it out and generate passive income. This is called rental property investment. If the rental income covers your monthly mortgage repayments, you’re practically getting someone else to pay off the property for you. Not only does the tenant help you pay off your mortgage, but you can also gain positive cash flow.
Get on the property ladder
If you’re not a homeowner already, it can feel next to impossible to get on the property ladder and into the home you love. But more first-home buyers are now choosing an investment property as their first stepping stone to home ownership. Your first investment property doesn’t need to be huge and expensive. Simply getting that first property that can start bringing in rental income can lead to you being able to utilise the available equity to purchase your next property or up-size to a better one. Once you are on the property ladder, you have significantly more options available to you at less effort.
Don’t underestimate the power of property
If you’re new to real estate investing and owning property, you may be yet to enjoy the many benefits that property provides. If you are planning on getting into real estate investing but you’re not too sure where to begin, it’s important that you do some research before taking the plunge and buying your first place.
Getting the right property will make a huge impact on your ability to make your money and your investment property work for you. Whether you’re wanting to buy property in your local neighbourhood or you’re an Australian expat looking to buy back home, the power of property investing cannot be denied.
If you’re considering investing in property in Australia or overseas and you would like some insights on the tax implications of doing so, please feel free to book an appointment with us here at Expat Taxes to discuss all the ins and outs.
- Update: Thailand Clarifies Tax on Foreign Income - 25/11/2023
- Remote Workers – Australia’s Opportunistic Tax Grab - 11/11/2023
- Tax Alert: Thailand to tax foreign income - 25/09/2023
