- Leverage
Property is one of the most effective of all asset classes to leverage debt. By contributing a small portion in the way of a deposit the investor is able to control an asset of significantly greater value. Similarly, the returns from the growing asset will be proportionately greater.
- Growing population
The Australian Bureau of Statistics estimates an overall total population increase of one person every 2 minutes and 9 seconds – and loosely applying the rules of supply and demand, we can rest assured that there will be a continued need for housing for many years to come.
- Return in Investment
Historically, the value of property has experienced a gradual and steady rise.
- Security
'Bricks and mortar' provide a tangible sense of security. Keep in mind also that we all need somewhere to live, and the amount of suitable land is finite, so residential property essentially commands a built-in value.
- Control
With property (unlike shares), Brokers do not make decisions on your behalf. You can choose the extent of your involvement from purchasing your property, to managing it.
- Stability
When viewed against the stock market or other business ventures (and considering property market cycles plus local economic conditions) your property is less likely to be devalued to nothing ($0.00) as can happen with the said investments.
- Adding Value
You can add value to your property with simple renovations, obtaining redevelopment approval or by subdividing. For a small cost the returns can be substantial.
- Inflation
Inflation works in a property investor’s favor. Generally as inflation increases, so too does the property value. This is why property has traditionally been a good hedge against inflation.
- Rental Income
In the medium to long term rental income from the property generally increases with rising property values, which assists you in paying the mortgage; in some cases the rent may cover the entire monthly mortgage payment as well as putting some money back in your pocket.
- Tax Advantages
A benefit to property investors are those tax deductions received from expenses incurred. Tax deductions are split into two categories: revenue cost and capital cost.
Revenue costs are incurred from earning rental income, and are classified as cash or non-cash. Cash deductions, like interest rates and expenses, are deductible at the time the cost is incurred. Non-cash deductions such as depreciation and borrowing costs are claimed annually regardless of whether or not you paid out any monies in a particular year.
Capital costs are any funds used for the purchase of, sale of, or improvements to an investment property. Buying and selling costs are generally not directly deductible against income. These costs can be attributed towards calculating the Capital Gains Tax (CGT) payable once the property is sold. Regarding the improvement category, there are shades of grey as to what constitutes a repair that is tax deductible now. Otherwise, if it is noted as a capital improvement, it will need to be taken into account in the CGT if the property is sold. A capital improvement is understood to be any work on the property that returns it to the condition it was in when you bought it.
- Funding
In most cases banks are very willing to lend money secured against property as it is deemed a low risk investment. When buying a property you typically only require 10% (sometimes less) of the purchase price in cash.
- Cash flow
As your property increases in value you can access the increased equity to meet lifestyle changes and to further invest in property.