Putting money into property

Why invest in property?

• Growth – it can increase in value.
• Income – can provide income from rental returns.
• Tangible – it is a solid asset you can see.
• Add value – by building or renovating you can add value to it yourself.

Disadvantages

• Performance isn’t guaranteed – due to market dynamics, property can fall in value.
• Decay – property requires continuing maintenance if it is to maintain its value.
• Non-Liquid – Property can’t be bought or sold easily. So it can be hard to dispose of quickly.

Who invests in property?

• Anyone looking for an income, e.g. retirees.
• Anyone looking for investment growth to build wealth.
• Young people buying their first home – the home you live in can be an investment for the future!

The first property most people buy is their home. Unlike home purchase where emotional factors can be very important in the buying decision, the reasons for purchasing an investment property (whether it is a house, apartment, commercial building such as a shop or warehouse, or simply land), are purely desire for income and/or increase in the property’s value. The downside is the cost of taking care of the property. 

As well as buying property directly, you can also invest in property indirectly through managed funds, some of which invest in property.

Advice and research

When investing in property always get advice from your investment adviser, accountant and your solicitor.

Unless you are one of the lucky few who can buy a property with cash, you will need to start looking around for either a home loan or an investment home loan. Often this will be a twenty year loan, so make sure you research the different loans available.

The home loan market is very competitive and there are a lot of providers. So shop around and don't stop until you find the best deal. When researching a home loan, some of the things you'll need to consider include:

• the deposit required (most financial institutions require that you contribute at least 5 to 10% of the value of the property as a deposit)
• your budget (how much you can afford to repay per week/fortnight/month)
• the amount of money the lender is prepared to lend you
• the interest rate (including whether it is a variable or fixed interest rate)
• the loan payment methods or options
• the extra features available on some loans, such as redraw
• the conditions of the loan contract (including exit and entry fees)
• refinancing options.

The Department of Fair Trading web site in your State or Territory may provide some valuable information about what to research when you are buying or selling a property. Links to these can be found in the consumer and business directory on the ACCC website: click here.

Know the true costs

If you are considering an investment property, do your figures to check whether the return (the rent minus your ongoing costs) will be greater than that of another investment, such as a Term Deposit. If it isn’t, you may want to reconsider the options.

Investing in property involves costs that normally don't affect other types of investments. These costs include council rates, water rates, agent fees, maintenance and insurance. Make sure your returns cover these costs. Be aware of all of these demands when doing your calculations.

A quick calculation

Test yourself. Imagine you have seen a dream property in a good location with excellent rental potential. If you needed to borrow $195,000 to buy it, how much would the repayments be? What amount per month could you afford on your budget?

Tax

Property investment naturally has tax implications. Learn more about them.