Why real estate is a good investment

You need to seek your own financial advice as every person’s situation is different. The benefit of property is you can gain both rental income and capital growth. You can get good returns by just placing your cash in a bank with a high-interest savings account, but when you leverage that cash with an investment loan, you’re betting that you can make a more significant capital gain than the cost of money. Lots of people build wealth by owning properties over a longer period, riding out the market cycles of the day. If you’re able to buy and hold, then you’ll always do well, as long as you buy the right asset. Usually, houses go up more than units or townhouses in saleable value over time, given the land component and redevelopment potential of the land.

Interest rates have peaked. However, many believe they will start to subside towards the end of the year. A number of changes are coming which will benefit property investors including a lower deposit requirement for investors (LVRs). More property investment means more rental homes for tenants to choose from, which should help make rental properties more affordable.

When purchasing a property, investors will look at the return (the rental yield) and the potential to make capital growth (growth in the sale price) or a good mixture of both. Older investors may be more interested in the return because they’ll be selling up in the next few years, while those who have time to wait out market cycles are more driven by a capital gain.

The secret is to time your entry into the market. With a record number of properties available for sale, now is a great time to buy if you can finance and hold onto the asset until there are more favourable conditions. Buying the property for the right price will show good capital growth when the next rising market returns. Markets do go in cycles, and it’s important to remember that you’re only one or two policy changes away from a completely different market.

Real estate is seen as a safe asset over time. Remember we all need somewhere to live. Your asset is the land value. Usually, you’ll make improvements to the property over time when it’s renovated or redeveloped. And property allows for both rental return and capital growth.

Shares, on the other hand, provide both dividend and capital growth opportunities but are often more volatile as they’re considered a fast-moving asset.

Cryptocurrency only provides a capital growth opportunity with no dividend (unlike shares) or rental income (like property).

When owning an investment property, you should factor in the following expenses:

• Improving the asset over time (things like new carpet, new bathroom or kitchen).
• Maintenance costs like replacing the hot water service, lawn mowing and so on.
• Management fees to look after the property, ensuring compliance and easy ownership. They’ll find the tenants, work with them and collect rent.
• Any shortfall between the rent and mortgage repayments (negative gearing). Most properties being bought today are negatively geared, due to the higher cost of capital.

Know the area that you’re buying in and if there’s any expected population growth or planning changes on the horizon. Look for properties where there’s a good population base too.

Buy properties close to transport. Look for buildings where there’s a well-run body corporate and where improvements have already been made. Try to find somewhere where you can add value, like repainting or re-carpeting, so you can improve the rental income quickly.

I also love properties where there’s redevelopment potential well in the future. Think, for example, of an older house on a large block where the council would allow an additional dwelling on the section.

All agents can sell investment properties. It’s great to have one who also has a property management service division to provide additional support in taking care of the property over time.

You’ll also need to work closely with your bank or mortgage broker and a solicitor for all legal documentation, including updating your will. It’s worth checking in with suppliers like a handyman or painter too, for quotes or estimates to get your property up to standard before it goes on the rental market.

Yes, a real estate investment trust can spread the risk so it’s not just one property or property type. They also allow for a more managed approach with less stress. Usually, they have a minimum buy amount and minimum investment period so you have less choice about getting in and out as you would if you own your own asset.