Asset Class: Property Investment - Addisons Advisory Group

Asset Class: Property Investment

When looking to become a property investor, it is vital to be sure of your investment strategy and goals

Property Investment

Property is a growth asset with a medium to high risk level and potential return. Property includes directs property and listed Real Estate Investment Trust (REIT) investments across residential and commercial sectors. REITs are pooled property investments which are broken into units and listed on stock exchanges to provide liquidity to investors. REITs generally invest in a range of residential and commercial properties including retail shopping centres, office buildings, industrial factories, hotels and leisure centres. REIT prices fluctuate with underlying property fundamentals as well as with broader share market volatility.

When looking to become a property investor, it is vital to be sure of your investment strategy and goals. Are you going for high rental returns for the short term or are you going for long term capital growth?

These are some points to consider:

  • Buy a property that fits your strategy, e.g. are you wanting to negatively gear?
  • Understand all the expenses including, stamp duty, strata levies, council and water rates, real estate commission.
  • Consider getting Landlord home and contents insurance to cover you if the unexpected happens.
  • Plan - give your tenants a suitable length of lease and make sure you can cover repayments if the property is unrented for a period of time.
  • Choose a loan that suits you and consider an interest only option as it will lower repayments and increase your cash flow.
  • Keep up to date on the latest property trends.

Benefits of Property Investment

Investing in property has several benefits, including the potential to:

  • Property can be less volatile than shares or other investments
  • Earn rental income
  • Generate capital growth if your property increases in the value over time  
  • Gain potential tax advantages associated with negative gearing – with negative gearing you can deduct the costs of owning your investment property from your overall income, reducing your tax bill.

Risks of Property Investment

There are risks associated with property investment include:

  • Market risk – there is potential for a market-wide prices crash and this is difficult to mitigate through diversification. Property investors should additionally invest in other asset classes that tend to movie in a non-correlated manner to real estate.
  • Liquidity risk – it can be difficult to buy and sell investments when desired due to limited opportunities.
  • Interest rate risk – A jump in interest rates will affect your return and decrease your disposable income.
  • If the property market goes down so does your whole investment. There are many instances where people have ended up owing more than their investment property was worth, this is known as negative equity

If you would like to discuss the best pathway to successful property investment, please contact us for a complimentary consultation.