When done right, investing in real estate can be a fantastic way to increase your portfolio’s value. Buying an investment property is a good idea for the long-term financial well-being of many Australians. That’s why we’ve written this guide to real estate investments and how to make sure you can get as much return from your money as possible.
Why buy an investment property?
1. Security and stability
Everybody needs a home – that is never going to change. This means that real estate is a brilliant investment that you can count on; even with the real estate market having its ups and downs, you’ll still receive stable rental returns in the long term – making it an attractive choice for investors.
2. Provides positive cash flow
Another advantage of buying an investment property is that investment properties provide passive income. Provided your rental returns are higher than mortgage repayments and other expenses, real estate investments will provide a positive cash flow. This income hugely increases the value of buying houses for investors.
3. Unlocks tax benefits
Real estate investors benefit from tax deductions and advantages, which helps them to manage ongoing costs and increase their rental yield. For example, property investors can offset any losses they incur in property investment against taxable income, a system termed ‘negative gearing’. Alongside other advantages like receiving tax deductions for depreciation, negative gearing increases the value of your investments, making managing costs like landlord insurance and mortgage payments easier. We recommend using an income tax calculator if you’re considering buying property and want to see the potential tax benefits you’d receive
4. Capital growth
Capital growth is a significant advantage of buying an investment property. Capital growth refers to the continued growth of your property’s value over time. Typically, the longer a real estate investor owns an asset, the higher capital growth will be. If you’ve picked the right property and treated it well, growth can be above the average rate in the property market. Further, holding onto real estate for an extended period can also unlock new tax benefits, making investing in property an even better investment strategy.
What to consider when buying an investment property
Investing in real estate is always a good idea. It’s an even better idea to ensure you receive the best deal possible to maximise improvements to your financial situation. But what considerations do you need to make?
One factor to consider when looking at an investment property is the expected rental yield. Yield can be affected by several things. Firstly, think about the income you can expect to receive from tenants. What is the average rent for similarly-sized properties in the area? How might this grow in the future? On the flip side, consider the ongoing costs you’ll face. For instance, what are the council rates for this property? What initial payments will you need to make, like stamp duty and legal fees?
Looking closely at the location of a potential investment is crucial. If the property is close to a university, then you can expect a high rental demand fuelled by local students. Take notice of the details. Small things like nearby public transport links can separate great properties from the rest. Another crucial factor is the property’s age. If you purchase older real estate, you should anticipate high maintenance costs, or you might want to consider renovation.
However, older properties also have their advantages. You can claim the depreciation of ageing real estate against capital gains tax and other drains on your income.
For more on what characteristics make a good investment property, check out our blog!
Is buying an investment property right for me?
Real estate investment can be a winning investment strategy. It’s particularly effective for people who have already paid 10% of their primary residence’s value. If you’ve made progress on your primary residence’s mortgage, you can use this equity for further investments. Having more equity in existing investments improves your borrowing power, meaning banks will lend you higher amounts of money like investment loans, sometimes at better interest rates. Being equipped with more advantageous investment loans gives you a huge advantage when buying real estate. Better loans allow you to circumvent large deposits and find properties offering higher rental income.
How we can help
Semple Property Group is the property investment partner you can trust. Having an experienced real estate agent by your side is a great way to ensure you get the best deal when searching for real estate properties to invest in. With three decades of experience under our belt, we’re proud of our ability to provide quality insights into Western Australia’s property market and to help our clients manage their investments. From choosing between properties to calculating an investment’s tax implications, we can help at every stage of the investment process.
If you’re considering buying an investment property, speak to our experts today!