Investment Properties – The Pros and Cons

With the Australian housing market bouncing back, as highlighted by the recent rise in capital city auction numbers and home values nationally, it’s not surprising that the value of new investor loan commitments is also trending upwards. Investment properties can provide a wide range of benefits, however there are several factors to consider before committing to an investment property purchase. Below are some pros and cons of investing in property, to help you make an informed decision that is right for you.

Pro: If your property is tenanted, you have the ability to earn a passive rental income. If the rental income generated by the property is greater than your loan repayments, utilities and maintenance costs, this means that your property is ‘positively geared’. Increased income through positive gearing can enable you to pay off your home loan faster, maximise your savings or even pay for a holiday. However, bear in mind that as your taxable income rises, so too does the tax on your rental property. We recommend speaking to an accountant or financial advisor to learn more about the potential benefits and tax implications of rental income.

Con: Government homeownership grants and schemes typically aren’t available to investors. These initiatives generally require you to be an owner-occupier for a period of time, and are designed to support borrowers such as first home buyers, regional first home buyers and single parents or legal guardians with dependants.

Pro: There are potential tax benefits associated with investment properties. Property investors can generally claim the interest charged on the home as a tax deduction, and if your loan repayments and maintenance expenses exceed your rental income, this means your property is negatively geared and any losses you incur generally become tax deductible. However, we recommend seeking guidance from a financial advisor or an accountant before deciding on your property investment strategy, to ensure that you have all the latest and most accurate information regarding the potential tax benefits.

Con: Benefiting financially from your investment property relies on tenancy. If your property sits vacant for an extended period, you may find yourself having to pay off your mortgage without the offset of rental income. This can be detrimental to your finances and poses a real risk. It’s therefore important to do your due diligence before purchasing and find out the vacancy rate of the area you’re housing hunting in, before making any major decisions.

Pro: Rental income isn’t the only benefit of owning an investment property. With any luck, your investment property will increase in value over time and provide you with a decent profit when (or if) you decide to sell down the track.

Con: As a landlord, you’re fiscally and physically responsible for the wellbeing of the property. Tenants can be charged for damages they cause, but general wear and tear as well as plumbing and electricity bills are the responsibility of the property owner. It’s worth preparing a condition report for tenants to complete so you aren’t held accountable for any avoidable damages.

Pro: Rentvesting is a popular homeowning strategy whereby buyers purchase an investment property in an area they can reasonably afford, and continue to rent and live in a suburb that suits their lifestyle, but that is outside their purchasing budget. Rentvesters therefore can earn passive income from their investment property, and then use this income to pay their rent and fund the lifestyle they want.

There is a lot to consider when it comes to investing in property. Everyone has different financial circumstances, objectives and risk appetites, so it is important to make decisions based on your personal situation, and to seek advice from an accountant or financial advisor before making any decisions.

If you decide that investing in property is right for you, our team of finance specialists can assist you to find the right loan for your needs, and help turn your investment dream into a reality. If you would like to learn more about some of the investment lending solutions available to you, reach out to your local MoneyQuest finance specialist today.

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