Pros and Cons of Property Investment
You will need a deposit of 20% of the property value if you want to avoid paying for Lender’s Mortgage Insurance, and there are other upfront and ongoing costs involved.
Every form of investment comes with certain risks. So before you consider buying an investment property, weigh up the pros and cons to identify if it is is the right choice for you.
Pros of investing in a property
You can benefit from long-term capital growth
If you buy at a good price in an excellent location, you may see your investment property increase in value over time. This is called capital growth.
Investment property expenses are tax deductible
If your investment strategy is “negative gearing” where the cost of owning an investment property is greater than the rental income, you can benefit from tax deductions.
You can earn from rental income
“Positive gearing” is an investment strategy where your rental income is greater than the cost of owning the property. If you are able to generate positive cash flow, you can use the money you earned from the property to pay for the mortgage repayments. Plus you can pocket the extra money to save or to invest in other things.
Investing in property is easier to learn than some other forms of investment
Investment properties are easier to understand than some other types of investment. You need to learn about managing a property but this can be quickly achieved if you are willing to make the effort.
Investment properties are a tangible asset
You can physically see and touch an investment property, unlike shares and many other investments. You can also enjoy it for personal use if your property is for seasonal rental such as a beach house.
Cons of investing in a property
Interest rates can fluctuate
Most investors will need to take out a loan to buy an investment property. If you take out a variable rate loan, you will be exposed to changes in interest rates. However, if you have a fixed rate loan, you are protected from fluctuations during the agreed fixed-rate period.
Buying an investment property is expensive
The standard deposit for an Australian property is 10%. You may also have to pay for Lender’s Mortgage Insurance and other upfront costs such as conveyancing fees, building and pest inspection fees, and stamp duty. An investment property needs more capital that many other types of investment.
Maintenance and repairs can cost you big time
Another disadvantage of being a property investor is having to pay for maintenance and repairs on the property. This has the potential to be much more expensive than you anticipate.
You may suffer prolonged vacancy
The rental income you’re generating currently may cover your mortgage expenses but if you lose your tenant and can't quickly get a new one, you will need to cover the expenses from your own pocket. In a worst case scenario, you may be forced to sell the property.
Investment properties can take a long time to sell
It may take several months or even years before you can sell your property. Disposing of a property may take longer than selling other investments.