Buying an investment property continues to be one of Australia’s favourite ways to invest hard earned money.

Buying an investment property should be about growing your wealth and securing your financial future. The cost of owning an investment property can be surprisingly low after you take into account your rental income and the tax deductions you’ll be entitled to.

To most, investing in real estate is all about capital growth, so choosing a property that is more likely to increase in value is the most important consideration, so buying the right property is absolutely critical. We have valuable data on different locations and property developments and this will help you pick the best investment property.

Ensuring that you have a steady rental income stream is also vital because this cash flow will make the holding of the asset more affordable and provide income. Getting a tenant to pay the rent will also reduce your loan or debt and over a number of years this can be huge amounts of equity created by the tenant on your behalf. In other words, the money they invest in rent ends up in your pocket as equity.

Different types of property can outperform each other over time. For example, investing in a unit might mean less maintenance costs but higher body corporate and less capital growth than investing in a house and land package that has huge capital growth but higher maintenance costs. Yet the unit is most often the perfect entry level due to the lower purchase price. Some areas offer higher rental yields, but it does not guarantee higher capital growth.

It is also important that a property suits the demographics of renters in the area. For example, if it is near a university more bedrooms will be in greater demand than a big backyard for kids to run around. A family home that is close to schools and parks on a quiet street will be more desirable than a property on a busy road.

Once you own an investment property it can be quite inexpensive to keep it and service the loan, that’s because you earn rent and get a tax deduction on many of the expenses associated with owning the property and remember that over time rents tend to increase as does your own income – so you can expect things to get easier the longer you hold onto the property. Interest rates can vary over time but the good news for property investors is that in times of rising interest rates you can normally expect to be able to increase the rent.

Negative gearing can offer tax benefits if the cost of the property investment exceeds income it produces. Australian law allows you to deduct your borrowing and maintenance costs for a property from your total income. So, while you are actually making a loss on the property, the advantage is that the loss can be used to reduce the amount of tax on your other earnings while you are accumulating wealth through compounding capital growth.

Remember that property is a long term investment and you should not rely on property prices rising straight away. It’s a marathon not a sprint. The longer you can afford to commit to a property the better the return, and ‘investment’ by definition means an asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.

There are a heap of great advantages to buying an investment property. Here are just a few of them:

Leverage

You can borrow more to fund real estate purchases than any other asset because of its ‘bricks n mortar’ high security. You can actually receive returns on money that is not even yours. So in other words, you invest a deposit of $40,000 on a $400,000 property and you will receive from 5-15% annual return on the $360,000 that is not even your money (borrowed funds).

Returns

Over the long term real estate has returned around 10% per year in capital.

Security

As long as you purchase within your means and you have a deposit large enough to create equity in the property you will never go broke as there will always be demand for property (either a home or investment to rent out).

Forced Savings

Owning real estate creates a good discipline when it comes to saving money. People paying off a mortgage are less likely to waste money on things they do not need as they have a financial commitment each month that is accumulating wealth, not wasting savings.

Forced savings also turns into compounding profits so as the property increases in value, your money is turning into more money that is why the earlier you start investing in real estate the better.

Value Adding

Property allows you to add value at any point by adding new features, upgrading or just repairing parts of the property that will dramatically increase the value of the property. Sometimes it’s just new paint, tidying the gardening or even new carpet that can dramatically increase the value of the property.

Lucky One

Some owners of property have had agents calling them asking if they are interested in selling their property as they have a buyer ready to make an offer, well over the normal asking price. This is the result of being in ‘the game’, no one has ever knocked on a door offering anyone double what’s in their bank account.

As an owner of a property many opportunities to buy more property, or sell the property for big profits, will arise, if you don’t buy property none of these opportunities will ever come your way