Beginner’s Guide to Investing
June 2011, First Edition
Buying an investment property can be an overwhelming decision.
To help you navigate the investment process, this guide has been developed to provide you with everything you need when starting out in property investment. With the help of various tips and checklists, this useful guide will help you to secure the right investment property.
Why Invest in Property?
Investing is a choice many people make at one point or another, in the hope of bringing wealth to their lives. Whilst there are many investment alternatives such as stocks, bonds and cash, property investment tends to be viewed as one of the safest and easiest options.
However, property investment isn’t for everyone. Thus if you are considering investing in property, it is important to weigh up the pros and cons.
Table 1: Pros and Cons of Investing in Property
- Capital Growth: The value of your property will grow over time and may be extremely beneficial financially if well chosen. Not only will you benefit from steady capital growth, but regular monthly rental returns
- A safe investment:This is the only investment market which is not dominated by investors, hence creating a natural buffer in the market.It is also the most forgiving investment; if you purchase the worst house in the area, chances are that its value will still increase over time.
- Mitigate risk: You can insure your asset against most risks; fire / damage / a tenant leaving, damaging your property or breaking the lease.
- Anyone can invest: You do not have to possess a vast amount of knowledge, as you may with stocks or opening up a business.
- Control: Unlike other investments, you are in full control of your property investment; you can make all the decisions and have control over all of your returns.
- Tax benefits: Although tax benefits should not be used as a decision-making factor, it can be a benefit of investing in property. If your property is negatively geared, it may provide tax benefits.
Note: it is important to consult your financial advisor to seek advice
- Liquidity: Although you can sell your property if things get tough, the process is not as quick as it is to sell other investments such as shares
- Hidden and ongoing costs: Along with the initial costs of investing in property (i.e. stampduty, deposit, legal and conveyance fees), you will need to consider the ongoing hidden costsof property investment such as fitting out the property, maintenance and repairs, buildingand landlord insurance, land tax, water rates, council rates, etc. Other investments such as shares do not incur ongoing fees.
- Rent free periods: During the periods when you are unable to find a tenant and the property is vacant, you will need to cover the mortgage repayments.
- Bad tenants: Problematic tenants are every owner’s nightmare. They can severely damage your property, refuse to make payments and sometimes even refuse to leave the property. Some disputes can take months to resolve and become very stressful, especially if there is an emotional attachment to the property.
- Other costs: Although negative gearing may offer tax deductions, you will need to consider and budget for the shortfall between repayments and rental income as well as the cost to cover repayments when the property is vacant