The main advantages gained from investing in property are as follows:
Depositing your money in the bank or investing in fixed interest products does not provide you with any capital growth. If you buy property (or shares), however, you do so expecting that the property will grow in value over time.
One of the advantages of owning investment property is that you can start to receive an income almost immediately. Once you have put a tenant into your property, you should receive a couple of weeks’ rent in advance upon signing the lease and then regular payments of rent into the future.
Without question, one of the main reasons people decide to invest in property rather than shares is that they have greater control over their asset.
For example, if they want to receive a higher rent, they can upgrade the property. If they want to increase the value of their property, they can renovate, landscape or possibly even sub-divide and create new allotments.
The other main reason people will buy property instead of shares is that there is less risk in property. They understand that there is also a lower return in purchasing property but they are willing to forsake potential high returns from investing in shares for a stable return from property. They can sleep well at night knowing that the price of their property is very unlikely to plummet overnight, which can happen to the share market.
Tax is very topical at this time of the financial year . There are several tax benefits available to property investors. Using property as security to borrow money to purchase other property allows you to leverage to a greater extent than if you were using a share portfolio as security.
Most lenders will lend Overseas Investors up to 80 per cent of the value of the property being purchased. However, if you are interested in buying shares, they will generally lend up to 70 per cent. One of the tax advantages with this greater leveraging is that you can claim a greater tax deduction on the interest charged on the loan.
Any legitimate expense incurred in running your investment property should also be tax deductible. These include travelling to your investment property to collect rent or money paid to a property manager to manage your property on your behalf.
Depreciation of the building may also be claimed as a tax deduction. Buying brand new or a relatively new property allows for the greatest amount of depreciation. Claiming building depreciation is a clever way to increase your cash flow.
You should never buy property (or any asset) just for the tax benefits. Getting a tax benefit should be a bonus, not the sole reason for purchasing.
It has been shown historically in Australia and all over the world that property increases at a greater rate than inflation. Periods of growth can vary but generally speaking in real terms (without inflation) property growth outstrips increases in inflation.
We believe investors should have a diversified investment portfolio, which includes some property, some shares and some cash. The weighting of the portfolio will often be decided by the knowledge (or lack of it) in a particular asset class. If you want to earn more, you need to learn more.
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