The most asked question in money: “is property a good investment?”

When it comes to investment property, the most frequently asked question is, “Is property a good investment?” Of course, at Blue Wealth, we live and breathe property, so the internal answer is often ‘duh!’… but the reason this question is asked so often is the uncertainty many have about putting their money into property, a market known for its potential high rewards but also for its risks and complexities.

Let’s explore the key factors that influence property investment decisions.

You can see it, feel it, live in it

Unlike stocks or bonds, property is a tangible asset, which means investors can physically see and use their investment. This gives the investor a sense of security.

Leverage, we’ve all heard the word; what does it mean?

Unlike many other investments, banks are willing to lend you money against the purchase of a property – in most cases, 80%. Roughly speaking, this means you can use your $100,000 to purchase a property worth $500,000. Why is this important? Because this ability to leverage means you can invest in a higher-value asset, making you money quicker. To simplify it, assume your investment will grow by 5% annually. If you invest your $100,000 in shares, that means a return of $5,000 per year. If you use your $100,000 as a deposit for a property and borrow $400,000 from the bank, your 5% growth gives you a return of $25,000 per year.

A steady cash flow

One of the most appealing aspects of property investment is the potential for steady cash flow through rental income. Properties in high-demand areas can provide a consistent stream of revenue, making it easier for investors to cover mortgage payments and other expenses.

Tax advantages

Property investors can take advantage of several tax benefits, including deductions for mortgage interest, property depreciation, and operational expenses. These tax incentives can significantly reduce the overall cost of owning and managing investment properties. If you’ve been to one of our educational events, you’ve seen it before – depending on your taxable income, you can reduce your cost for a property to around 5% while the other 95% is paid for by the taxman and the tenant.

Property value growth

Over time, property generally appreciates in value. While the appreciation rate can vary significantly depending on location and market conditions, many investors see substantial returns on their investments over the long term.

You only need to look at historical data to see that even when there are market dips, property value has grown consistently by 5.6% per year overall.

Why aren’t more people doing it?

So, if all those benefits are true, why are only 8.5% of Australian property investors? Why aren’t more people doing it? Well, because the easiest thing to do is nothing, and there are a whole lot of people who are crippled by the risks and challenges that property investment can present.

Let’s take a look at what these are.

Market fluctuations

Property markets can move up and down, as the previous chart shows. Property values can rise and fall based on economic conditions, interest rates, and other factors. Investors need to be prepared for these fluctuations and have a long-term perspective.

Property takes longer to sell

Property is not as liquid as stocks or bonds. Selling a property can take time and requires expenses, such as agent commissions.

Management responsibilities

Owning rental property requires active management, whether handling tenant issues, property maintenance, or legal compliances.

Financing

Securing financing for investment properties can be more complex and costly than your home. Some loans can include higher interest rates, larger deposit requirements, and stricter lending criteria.

Where, when, what

But let’s face it—the biggest factor stopping people from investing is a fear of getting it wrong—buying the wrong property, in the wrong location, at the wrong time.

To determine if a property is a good investment, potential investors should consider its location and whether it has areas with strong job growth, good schools, and amenities. They should also understand local market conditions, including supply and demand dynamics, rental rates, and property values, all essential for making informed decisions. They should also have a clear financial plan, including financing the property, managing cash flow, and handling potential risks.

These are all things that we help our clients with at Blue Wealth Property, and they are the main reasons over 35% of our investors have purchased more than one investment property.

Property investment is typically a long-term commitment. Investors should be prepared to hold onto properties for several years to realise their returns—but the reward could be significant.


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