Buying an investment property is one of the easiest forms of investments to understand. It’s real life brick and mortar that you can actually see and touch. You also have the freedom and choice in different types of investment properties. For example: houses, apartments, commercial buildings and land.
Buying a property to rent out is a popular form of investment. Houses and units are easier to understand than many other forms of investments. However, they do have some issues that you need to be aware of. Before you attempt to enter the property market, you should speak to a financial adviser first.
- Property can be less unstable than shares or other investments
- You can earn rental income and benefit from capital growth (if your property increases in value over time)
- If you take out a loan to purchase an investment property the interest on the loan is tax deductible
- You are investing in something you can see and touch
- Rental income does not usually cover your mortgage payments or other expenses so you may have to use your regular income to cover these costs
- A jump in interest rates will affect your return and decrease your disposable income
- There may be periods of time where you don't have a tenant and will have to cover all costs yourself
- You can't sell off a bedroom if you need to access some cash in a hurry
- If your property investment is your major investment then you may have little or no diversification
- If the property market goes down so does your whole investment. There are many instances where people have ended up owing more than the value of their investment property, this is known as negative equity.
- There are very high entry and exit costs
Please note this is NOT advice. Speak to a financial adviser to see if this information is right for you