Buying an investment property is a popular form of investment. An investment property can be an effective tool to maximise wealth creation in a tax effective manner.

However, buying an investment property can be a complex decision with many factors to consider and before buying an investment property, you should always consider its merits and demerits.

This article will give you an insight regarding the advantages and disadvantages of property investment and few tips to make the most out of your investment.

Advantages And Disadvantages Of Property Investment

Advantages

(a)     property investment can be less volatile than shares, mutual funds and other types of investment;
(b)     if you invest in properties, you can earn a rental income and your property can generally have                      capital growth over time; and
(c)     in case you take a home loan to buy an investment property, you may be entitled to tax deductions and can also structure effective negative gearing arrangements.

Disadvantages

(a)     the rental income you will be earning may not be sufficient to cover the mortgage repayments and other expenses associated with the property. In such cases you will have to use a part of your regular income in order to meet those expenses;
(b)     in case there is a rise in the interest rates, it will affect your return and mortgage repayments as well.
(c)     you may come across a situation where you do not have any tenant for the property. In such a                situation, you will have to bear all the expenses from your regular income;
(d)     in case of an emergency when you need money on an urgent basis, you may not be easily able to sell your investment property. But, in case of shares or mutual funds you can sell even a part of your holdings and keep the rest;
(e)     if you invest in properties only, your investment portfolio will not have any diversification and this is            may be risky;
(f)     you may incur losses, if the property market falls. In such circumstances you will owe more money to your lender than the actual price of your investment property, which is also known as negative equity; and
(g)     the entry and exit costs of property investments are generally higher than shares.

Tips To Make The Most Out Of Your Property Investment

Following are some tips to make the most out of your investment:

(a)    Do your research: the most critical decision you need to make is whether you are choosing the right property for investment. Investing in a property is all about rental income and capital growth. While investing, you need to ensure that you receive a regular rental income so that you are able to hold the asset comfortably and also receive an extra income. Before you start searching for a property, you must have a clear idea about the kind of property you are looking for and your preferred locations. A bit of homework can save you from hassles down the line.
(b)    Property investments are long term investments: You need to consider all the taxes applicable to a property investment. Seek expert guidance in this regard as these taxes change over time. You also need to take into consideration other taxes that include Stamp Duty, Capital Gains Tax and Land Tax that you may be paying over the life of the property.
(c)    Property Manager: property manager or agent is the person, who will advise you on property law,         your right and responsibilities as a landlord and also of the tenant. The property manager is responsible for taking care of any maintenance issues with the property and is also responsible for finding a good tenant and to ensure that the tenant pays the rent on time. Finding a good property manager is an essential part of your strategy to buy an investment property.
(d)    Mortgage: there is a bewildering array of choices when it comes to financing your investment property and there are several different types of bank and non-bank lenders and broking agencies involved in it. Generally investment property loans are tax deductible. It is advisable to seek expert guidance, as to which loan is best suited to your specific financial situation and gets you the best tax outcome.
(e)    Condition of the property: you may be required to invest further after buying your investment property in order to replace the roof or to change the hot water system. This will make a significant difference in your profits for the first few months. Therefore, it is advisable to consult a professional building inspector before buying an investment property to gauge what level of repairs if any will be needed and whether this can be offset as a bargaining tool in regards to your negotiations on the purchase price of the property.
(f)     Arranging insurance: As a part of buying an investment property you should purchase landlord’s          insurance to protect your investment. There is a variety of landlord’s insurance products available in the market and it is important to seek expert advice to see which one suits your needs and best covers your risks arising from the tenancy of your investment property.
(g)    Attracting tenants: you should ensure that the property is in good condition and is presented attractively for prospective tenants. While buying an investment property, you should always keep in mind what are the key things you will look for in a property if you plan to reside. However, at the same time you should also remember that you are buying the property for investment and not to live in.

Buying an investment property can be a very profitable and rewarding experience when it is done correctly. The team at Owen Hodge Lawyers can guide you through this very important decision in your life.

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