The Pros and Cons of an Investment Property
An investment property indeed promises higher returns. The RBA’s rate cuts have provided the housing market with a boost, and investors are getting more confident as the cuts resulted in the rise of property value. But before you jump in, you might need to weigh the pros and cons.
Let’s start with the pros. Getting a rental home means you will have the financial flexibility and another source of income while preparing for retirement. And of course, the following benefits:
In an investment property, you can decide on your own — the type and location of your home, financing, and all. You’re investing in a physical asset that can be used as a leverage to build equity and a hedge against inflation, unlike the volatile stock market with its ups and downs.
With a bullish property market, the value of your property rises. There’s capital growth as your home appreciates year on year. But property valuation can be arbitrary. It can go up or down depending on the location, economic condition, and some other factors like foreclosures in the neighbourhood and property defects. However, caution and due diligence are required.
Having a tenant means additional income every month, and tax write-offs due to depreciation may contribute to positive cash flow.
But it is not all milk and honey when you seek to acquire a rental home. You’re going to deal with the following risks:
A strategic location is beneficial, but a sprawling district or suburb today might change over the years, and it will be harder to get tenants in the future.
Make sure the property has no structural defects and consider the cost of standard repairs and maintenance. An unpleasant tenant can be taxing on your property as you might spend more on the repairs of damaged parts.
High entry costs
Aside from deposit, there are other costs associated with property acquisition like conveyancing and legal fees, stamp duty, mortgage insurance, transfer fees, etc. It also takes time and costs you money to sell your property.
Like any other business or investment, rental property has manageable risks and plenty of opportunities. Should you wish to acquire an investment property, AFCG offers home financing and refinancing services with competitive rates. For enquiries, call 03 9621 1450 today.