Investing property

Why buy investment property?

Property investing is a common means of wealth creation. There are many advantages, for example most property tends to appreciate over time (capital growth), in contrast to stocks and shares, which are much more difficult to predict; rental income; and the tax advantages (see below). You don't even have to own your own home before investing in property - many people buy an apartment in an up-and-coming area, rent it out, and put the money towards a place of their own in an area in which they want to live. If you do choose to rent out your investment property, disadvantages include finding tenants that pay the rent on time and treat your investment with respect.

Historically, the capital growth of residential property is about 9%, but this value masks periods of stagnation and even falls in value. Therefore, if you do invest in property, be prepared to hang on to it for about ten years. Choose your property carefully - location and price. Keep an eye on prices and make sure you don't buy something in an area full of other rental properties, or where there's about to be a large increase in the number of apartments. To maximize capital growth, buy in a growth area - somewhere near a increasingly popular beach or booming industry. If the property has been rented before, research its tenancy history - were there problems that caused it to lie vacant for long periods of time?

Investing in property has its tax advantages, for example negative gearing, which occurs when an investor borrows money to purchase an investment property, but spends more on loan interest (and expenses e.g. advertising, home office, bank charges, property management etc.) than is received in rental income. When negatively geared, this loss can be deducted from your total income, thereby reducing your tax bill. Although a loss is recorded, it can be offset by any capital gain obtained when the property is sold at a profit. There are other tax advantages too - investment property owners can depreciate items such as fridges and furniture i.e. deduct their cost against their owner's income over the lifetime of the asset.