Pros and cons of investing in property

Pros

• Property is historically less volatile than shares or other investments.
• You can earn rental income and benefit from capital growth.
• If you take out a loan to purchase an investment property, the interest on the loan is tax deductible, in addition to certain holding costs.
• A Principle Place of Residence is CGT exempt in most instances. It is also exempt from the ATO ‘asset test’ for social security. Investment properties receive a reduction on capital gains tax if held for over 12 months.
• You are investing in something tangible – ‘bricks and mortar’.
• The ability to leverage property is greater than any other asset classes. This helps to underpin value whilst also enabling you to invest in a greatly increased asset value with the potential to compound the return on the investment value over time (this also creates higher risk).

Cons

• A jump in interest rates can significantly affect your return and decrease your disposable income.
• You can’t sell off a ‘part of the asset’ as you can with shares. It is all or nothing.
•  If property is your major asset, you may have little or no diversification into other asset classes. If the property market goes down, the majority of your investment strategy can be exposed.
• There are high entry and exit costs.
• Each investment is a large outlay relative to other asset classes, increasing the reward but also the risk.
• Buyers normally borrow more to purchase property than any other asset, therefore, the risk associated with the debt is often higher.
• For investment properties, rental income does not usually cover your mortgage payments and other holding costs, so you may have to use your regular income to cover these costs.
• For investment properties, there may be periods of time where you don’t have a tenant and will have to cover all costs yourself. 

David is the Founder and Managing Director of Property Planning Australia, author of ‘How to Succeed with Property to Create your Ideal Lifestyle’, co-author of ‘Property for Life – Using Property to Plan Your Financial Future’, co-host of the ‘Property Planner, Buyer and Professor Podcast’ and a widely-published media commentator. With more than 20 years of experience, David is passionate about educating others to make informed, and ultimately, more lucrative property investment decisions. David established Property Planning Australia in 2004 – with the vision to educate and empower Australians to make successful property, mortgage strategy and money management decisions.  Property Planning Australia’s operations have earned acclaim and national industry awards for its unique fusion of property planning, education, money management, mortgage strategy and risk management. All supported by multi award-winning customer service.