Last Updated: 20th April, 2023
Investing in property can secure your financial future if done well, which is why you need proper planning, not impulsive action. It’s important to have a clear understanding of your short-term and long-term goals.
Is It Worth Buying An Investment Property?
There are several factors to consider. Let’s take a look at some of the benefits and pitfalls of buying an investment property.5 Pros Of Investing In Property
Stable Investment
Property markets have proven to be less volatile than others. It may take longer to sell a property than other assets but regardless of the ups and downs of the market, you have a good chance to benefit from capital growth if you buy at a good price.Positive Cash Flow
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, in effect, you’re getting someone else to buy the property for you. Not only does the tenant help you pay off your mortgage you also gain positive cash flow. With the right plan and enough properties, you can gain wealth over time and fund your lifestyle.Tax Benefits
One big advantage of owning an investment property is the potential tax benefits. If your interest and ownership costs add up to more than your rental income, you have a net loss, which is known as negative gearing. But this loss can help you save on tax. For example, say you earn $80,000 in taxable income on your job and own a rental property. This property collects $20,000 a year in rent but costs $30,000 a year in interest and running costs. The $10,000 annual loss on the property reduces your taxable income from $80,000 to $70,000. Your marginal tax rate would be 32.5% so that deduction lowers your tax bill by $3250. This leaves a net loss of just $6750, instead of $10,000. In some cases, you can also claim tax deductions for depreciating assets, maintenance charges, pest control costs and other expenses.Physical Asset
Unlike markets that deal with shares and bonds, property lets you invest in something you can see and touch. You gain the advantage of an asset that you can live in or rent out to earn passive income.Build An Investment Portfolio
Properties are usually long-term investments, which can increase in value and improve your cash flow. You can even use the cash to invest in other properties and expand your property investment portfolio. High-income professionals like doctors are usually interested in building a property portfolio. Since they’re considered a low-risk borrower, they have a better chance at qualifying for an investment loan even with an LMI waiver. If you’re just starting out and have a low income, It may still be possible to secure a loan for an entry-level investment. Once you’ve built equity as the property value appreciates, you can use it to invest in other properties. With a property investment portfolio, you have the potential to produce capital growth and rental yield to generate robust long-term returns.
