The Benefits & Downfalls of Property Investing | Chifley Securities

The property market in Australia is absolutely booming right now. It has turned into one of the largest industries in the country. Last year the property market contributed 11.2% to the gross domestic product (GDP) and created over 1.1 million jobs. While the property market is doing really great there are always pro’s and con’s to any industry. Below is a highly beneficial break down to take into consideration when looking into property.

 

The Pro’s

  • Property can be less volatile versus investing in the stock market
  • You can earn additional streams of revenue through rental income and benefit from capital growth (if your property increases in value over time)
  • If you take out a loan to purchase an investment property, interest on the loan and most property expenses can be offset against rental income
  • You are investing in something that is a tangible asset

 

The Con’s

  • Rental income may not cover your mortgage payments or other expenses so you may have to use other money to cover these costs
  • An increase in interest rates will increase your repayments and decrease your disposable income
  • You can potentially lack tenants and experience vacancies during which periods you will have to cover costs
  • If the value of the property goes down you could end up owing more than the property is worth, this is known as negative equity
  • There are very high entry and exit costs such as stamp duty, legal fees and real estate agent’s fees

 

Don’t invest only in property. This is a common rule when you really invest in anything and that is to always diversify. If you invest exclusively in property, you will have a lot of money riding on one market sector. If you also own your home, you will have all of your wealth concentrated in the residential property market.

So it’s a great idea to at least diversify between residential and commercial so your risk potential stays low. Investments such as managed funds and ETFs allow you to invest in a broader range of assets. Don’t keep all your eggs in one basket!