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Should I Invest in Property? Years ago, the quick and simple answer to this question; was “yes”. But now, given the sheer diversity and complexity of investment options in the market, the answer is no longer such a straightforward one. So let’s take a look at property investment in a little more detail.
This is the ultimate objective of any investment as it is a measure of your total profit. Probably the two key factors that determine how much an investment will return are 1) risk and 2) the amount of money (capital) initially invested. Generally speaking, playing the share-market bears the most risk but can also yield the highest returns. Shares in blue chip companies (e.g. major banks, mining companies) are usually a safer bet as well as low-risk or ‘conservative’ managed funds. Property has traditionally been seen as a safe and reliable investment option. In most cases it is, but the following factors need to be kept in mind:
Property Price, Location and Condition
• Is the property reasonably priced? In many areas of the country, property has become over-inflated and may not represent a good investment opportunity, particularly if the real estate bubble bursts. • Where would you buy? Some areas have already peaked (as above) and others are waiting to boom. Just like shares though, it’s all a bit crystal ball and you do have to take a bit of a gamble. One option to consider is master-planned communities. Demand for properties in these communities is consistently high as they represent good value for money through affordable house and land packages (such as those provided by Coral Homes ). • What state is the property in? Will you need to outlay large amounts of capital to renovate and/or repair? Will this result in your over-capitalising and therefore, making a loss rather than a profit?
Length and Type of Investment
• How long do you intend owning the property for? Typically speaking, property is at the very least a medium-term investment, but tend to yields the best returns over the longer-term (10+ years). • Do you intend on living in the property or renting it out? There are pros and cons for each option. This is a really tricky area as it involves tax law (e.g. depreciation, Capital Gains Tax, etc.) and your best source of advice here is an experienced accountant.
• How much do you have to invest, how much will you borrow and most importantly, how much interest will you pay? If you rent out the property, you may be able to negate some of this through negative-gearing. Once again, best to consult an accountant on this.
Of course the one thing that hasn’t been mentioned here is the non-monetary value we place on our homes. If you’re wanting to invest purely for financial gain, that’s okay; you just need to be shrewd in your decision-making process. However, if you’re looking to put some serious roots down and build a family home, your approach is going to be considerably different. Ultimately, what you need to ask yourself is: what are my ultimate goals here?
Investing in property still remains a solid investment option. Just make sure you’re fully aware of some common pitfalls when buying (or building) and make sure you stand the best chance of maximising your returns, whether as an investor or home-owner.