Thinking of investing in property? Consider the pros and cons.

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November 10, 2017

Property investment is often seen as less risky than other types of investment, but there’s still plenty to consider.

A diversified investment portfolio is a good way to maximise returns and balance risk exposure.

Once you have a property in mind, consider what income you expect to receive from it, as well as what your regular expenses will be. Think about whether you’d be able to cover a shortfall in the long-term, and work out whether you could cover expenses short-term if you had no tenants for a while.

As with any investment, property has its pros and cons:

Advantages

  • Unlike some complex investments, you don’t need specialised knowledge to invest in property.
  • Property is a physical asset, so you’re investing in something you can see and touch.
  • As the owner of an investment property it’s you who determines how it is managed, the profitability is not determined by large corporations
  • You can earn rental income if the property is tenanted, and if your property increases in value, you will benefit from a capital gain when you sell.
  • Property can be less volatile than shares or other investments; and income growth from property is generally steady over the long term
  • Most property expenses can be offset against rental income, for tax purposes, including interest on any loan used to buy the property.
  • The property can be depreciated providing a significant tax advantage

Disadvantages

  • Some investors are reluctant to invest in property because they are not experienced in property management
  • Rental income may not cover your mortgage payments or expenses, so you may have to find other money to cover the costs.
  • A rise in interest rates will mean higher repayments and lower disposable income.
  • There may be vacancy periods when you must cover the costs yourself.
  • Property investment requires high entry and exit costs and investors are at the influence of interest rate activity
  • If the value of the property decreases, you might end up owing more than the property is worth (negative equity).
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