Are investment properties really worth it?

Real estate can be a great long-term investment strategy for some people. It can offer Australians the chance to build their wealth and set themselves up for the future. But as with any investment strategy or important financial decision, there are pros and cons that should be considered. But what are the pros and cons of investment properties and is buying an investment property really worth it?

Overview:

• What is an investment property?
• What are the pros and cons of investment properties?
• What is the average return on investment property in Australia?
• What investments are better than property?
• When is an investment property worth it?

What is an investment property?

An investment property refers to real estate purchased with the primary intention of generating income or profit – either through the future resale of the property, rental income, or both. Investment properties are not classed as primary residences (also known as owner occupied homes) and this can make it more difficult for borrowers to secure financing.

What are the pros and cons of investment properties?

Investment properties can offer various advantages and disadvantages. Understanding both the pros and cons can help you make informed decisions about whether investing in real estate aligns with your financial goals and circumstances.

Pros of Investment Properties

Potential for Rental Income

Investment properties can generate rental income, providing a steady cash flow stream and potentially covering mortgage payments and expenses.

Property Appreciation

Real estate values tend to appreciate over time, offering the potential for long-term capital growth and increased property value.

Tax Benefits

Investors may benefit from tax deductions on mortgage interest, property taxes, depreciation, and other expenses associated with owning and managing investment properties. However, it’s important to check with your accountant or the Australian Taxation Office (ATO) to confirm if you are eligible for any tax deductions.

Portfolio Diversification

Real estate can diversify an investment portfolio, spreading risk across different asset classes.

Leverage

Borrowing to invest in real estate allows investors to leverage their capital, potentially magnifying returns if the property appreciates.

Tangible Asset

Real estate is a physical, tangible asset that investors can see and touch, providing a sense of security compared to some other forms of investments.

Cons of investment properties

Management responsibilities

Property ownership involves management tasks such as tenant screening, property maintenance, repairs, and handling tenant issues, which can be time-consuming and require effort.

Vacancy and cash flow risks

Vacancies can impact cash flow, making it essential to have contingency plans for rental income gaps.

Market fluctuations

Real estate markets can be volatile, and property values can fluctuate based on economic conditions, impacting potential returns.

Maintenance costs and repairs

Property owners are responsible for ongoing maintenance costs, repairs, and sometimes unexpected expenses, which can affect the overall return on investment.

Liquidity issues

Real estate is generally less liquid than other investments. Selling a property can take time, and there might be costs associated with selling, such as agent commissions and taxes.

Financing and interest rates

Obtaining financing for investment properties might involve higher interest rates and larger down payments compared to owner-occupied properties.

What is the average return on investment property in Australia?

In Australia, the average return on investment properties can vary depending on several factors, including;

• property type,
• the location,
• the market conditions,
• and your specific investment strategy.

Because the average return on investment properties can vary so significantly, it’s important to do your research before making any decisions. This can include checking the most recent market reports and seeking professional advice from local experts.

Should rental income cover mortgage?

Ideally, rental income from an investment property should cover the mortgage payment, along with other associated expenses, to ensure the property is financially viable and potentially profitable.

However, while covering the mortgage payment with rental income is a common goal for property investors, individual circumstances can differ. Consulting with financial advisors, real estate professionals, or property investment specialists can provide valuable guidance tailored to specific investment goals and circumstances.

What investments are better than property?

What investments are best for you will depend on your individual circumstances, your financial situation and your future financial goals. While investing in property can be a good long-term investment, there are other investment options such as:

• Stocks and equities
• Bonds and fixed income
• Retirement accounts

Before you make any important decisions, it’s important to speak with a financial advisor to ensure you are making the right choices for you.

When is an investment property worth it?

An investment home can be a great opportunity to grow your property portfolio and generate income. Ultimately, whether investing in property is worth it or not will depend on your individual circumstances and what financial goals you are trying to reach in the future. It’s important to research your options thoroughly and consider consulting with industry experts.

Ready to take the next step?

Ready to take the next step but need a mortgage broker you can trust? Oceania Finance is here to help. At Oceania Finance, our team of experienced mortgage brokers put our clients first to provide them with a hassle free experience. Contact us today to find out how we can help you reach your property goals.