Good reasons to invest in property!

Investing in property is a sound part of any investment strategy for individuals that are focused, educated and proactive.

Property investment has long been a favourite with Australians and with good reason. Over generations and numerous market cycles it has delivered solid returns and created lasting wealth for many.

It is not as complex as investments such as stocks, shares, bonds or other financial products and the investment principles involved in property are relatively simple. With the right approach, realistic objectives, and plenty of groundwork, you can minimise your risks.

Choose your investment

In a time of increasing volatility in global share markets, there is significant appeal in property investment.

Residential property has been widely regarded as a solid and reliable asset class. With the right advice, structure and approach, property can deliver attractive returns to investors over the long term.

So why exactly can a good, well researched property investment deliver a good return?

One of the biggest appeals of property investment is the opportunity to leverage. Put simply, leverage means the ability to borrow money to increase your buying power and through this maximise your returns.

Typically, investors can borrow up to 90 per cent of the value of an investment property and this can create the potential to generate returns on the 20 per cent that you contribute to a property purchase.

Research essential for good returns

While it is impossible to guarantee that property will go up in value year on year, historically on average well selected Australian property has doubled in value every 8 to 12 years.

Imagine, then, the potential to create wealth if an investment property was held for 20, 30 or 40 years.

It is easy to see the opportunities for significant capital gains but there is another equally compelling attraction to owning investment property: the potential for cash flow.

Letting out your investment property means your tenants can help to pay off your mortgage. There may be a shortfall between your rental income and your outgoing mortgage repayments. However, if the rental value increases over time, this shortfall may decrease and eventually become an income stream.

Rental values have also increased historically and so it is possible that your investment property will deliver increasing income over the years.

If the rental returns outweigh the mortgage repayments, the extra funds can be channelled back into the loan to help drive down the principal sum. While this may take some years, the result will be an income-generating asset.

Of course, there may be times when the property is not rented – you should therefore have funds available to cover this possibility.