Benefits of property investment
Property is a reasonably secure, long-term investment. Potentially, you could earn rental income that may cover your loan repayments. If you decide to sell it in the future, you could benefit from capital gains. It can also provide additional financial benefits through taxation and gearing.
Building equity in your investment home loan gives you the opportunity to expand your portfolio with additional investments.
Investing in property may be a good way to diversify your portfolio and reduce your risk if you've other investments like cash, shares or managed funds.
Understanding the risks of property investment
Like any investment, there can be risks involved with property. The income from rent may not meet your expectations. It may not cover your loan repayments.
The value of your property may decline and you may end up with less money than you started with. You may not be able to access your money quickly and may earn lower returns than with other types of investments.
Remember, investment properties are long-term ventures, so prepare for the inevitable lows and highs.
Knowing your strengths and weaknesses
Real estate investing can require you to be a business manager, marketing specialist, accountant, tax adviser, product developer, handyperson, customer service rep, inspector and people manager. Sound like you? If not, then perhaps pay someone else to do it for you or consider another investment strategy.
Investment property research
By doing some sound property research, you can help to minimise the risks of investing in property. Always buy in sought-after locations, close to transport with easy access to schools and amenities. This means you're not likely to have problems finding tenants. You are also more likely to win with capital gains down the track.
Should you buy a house or a unit? It's important to buy what suits your budget and cash flow, and the type of property that suits the location you buy in.
Other types of investments
Shares are considered growth investments because their value can rise. You may be able to make money by selling shares for a higher price than you initially paid for them.
If you own shares, you may also receive income from dividends, which are effectively a portion of a company’s profit paid out to its shareholders.
Of course, the value of shares may also fall below the price you pay for them. Prices can be volatile from day-to-day and shares are generally best suited to long term investors, who are comfortable withstanding these ups and downs.
Cash is a conservative investment. This means that it generates regular income (through interest payments), as opposed to growing in value over time.
Cash investments include high-interest savings accounts and fixed-interest investments like term deposits, government bonds and corporate bonds.
Talk to an expert
Before you make important decisions with your hard earned cash, consider talking to a financial adviser to discuss appropriate investment strategies for you.