Property ownership has been a great decision for generations of Australians. Being a homeowner is the cornerstone of the great Australian dream. And owning investment properties has been the key wealth creator for many.
So, everyone knows it is a great idea to own your own home and invest in property. But what are the actual benefits of owning an investment property? Why do so many people choose to build a property investment portfolio?
I have listed 10 of the greatest benefits below:
1. Capital Growth.
Property has proven itself to be a powerful force in wealth creation. Over the past 30 years has increased in value on average by 7 per cent per year. This means that a property purchased for $200,000 30 years ago would be worth over $1,400,000 today. Imagine what a property purchased today will be worth in 30 years time!
2. Rental Income.
When you buy an investment property you expect to earn consistent and increasing rental income from the tenants that you let your property to. Rental income earned from our property example above has grown from $290 per week 30 years ago to $860 a week today.
3. Tax Benefits.
In Australia, our tax system greatly favours property investors. There are numerous deductions that you can claim as a property investor such as all the costs associated with owning the property, including deprecation benefits and the interest paid on your mortgage.
Residential real estate is viewed as a safe and stable asset class by banks and as such, they are willing to lend large amounts to help you buy an investment property. This means that you don’t need to save $500,000 to buy a $500,000 investment property – you can save a 10% deposit plus costs and borrow the rest!
Property is viewed by many as being a very illiquid asset class. I disagree with this view and suggest that with the correct finance structures, you can make it a very liquid asset. What do I mean by this? If you own a property that goes up in value by $100,000 you could borrow $80,000 against this growth with a little finance know how.
6. Low Volatility.
Over time property in Australia has proven to be a low volatility investment. All investments have ups and downs with property being no different. However, the fundamental and necessary nature of real estate ensures that the wild swings experienced within stock market investment are not experienced with property investing.
7. Physical Asset.
Following on from my previous point, when you are a property investor you own a tangible, physical asset in the form of bricks and mortar. This is a benefit as property is easier to understand and people can relate to it. It also helps that 70% of all property in Australia are owned by homeowners and not investors.
8. Full Control.
Real estate is one of the only asset classes to offer full control to the investor. The ability to make decisions on factors such as tenancies, strata, renovations, developments and finance is unique to property. Consider this contrast to stock market investments – you have no ability to affect a CEO’s strategic decisions on a stock you own.
9. Adding Value.
When you own an investment property you have the ability to supercharge the property’s value or rental income by completing cosmetic renovations or structural developments. Large profits have been made by taking advantage of this niche in the property investment industry.
10. Lifestyle Goals.
The goal of building a property investment portfolio is not to own the most properties but to use the wealth generated to achieve your lifestyle goals. Being a property investor gets you one step closer to the really important goals such as owning your dream home, supporting your family, funding your retirement and giving back to society.