In recent years we’ve all witnessed the risks of putting your money and trust in shares, financial organisations and agents in the hope of securing future wealth. Risks you have no control over and more often than not, no real idea where your money has gone.
Knowing how to invest in property enables you to see, touch and control your wealth. Sean Wood and the other tutors have always invested in ‘bricks and mortar’ rather than someone else’s smoke and mirrors’ and for them, there were no bad outcomes from the financial crises. In fact, economic adversity has produced incredible wealth generating opportunity.
Key Benefits of property investment include:
- Passive income
- The ability to become rich over a long period of time – in Auckland property doubles in value every seven to ten years
- Numerous strategies and components e.g. purchase and trade; purchase and renovate; purchase; build and sell; land banking; sub-divisions
- Favourable tax laws
- Control of your wealth
Why Property for Investment?
Property is perceived to be one of the best investments that can be made and inevitably almost every earning individual invests in property at some stage in his life, be it for residential purposes, speculation or investment.
It also happens to be among the first asset acquisitions after individuals pick up a job and find that they can put away some of their earnings for alternative uses. Property, of course, is an expensive proposition since it requires a larger amount of money and is a capital-intensive asset.
Reasons why property is better for investment than other assets
Property is one of the various options open to individuals on the threshold of making investments. While it is largely a personal choice in which individuals’ personalities play a role since it reflects their risk taking abilities, property is considered to be “safe” and everyone does invest in at least one property in a lifetime. Some of the reasons why property is preferred over other instruments are:
1. Property is less volatile
As compared to an investment in stocks and shares property is not as volatile, that is, its price does not react as sharply to market changes and other developments. Its value will not crash as is the case of many stocks. The promise of high and quick returns of the stock market tempts many, but exposes them to the risks of losses as well
2. No Fluctuating Rates
Fluctuating rates as seen in exchange rates in forex markets are not seen in property markets. They show a gradual steady increase or even a marginal decline.
3. Generates Capital Growth
Generates capital growth – Property prices appreciate over time and the capital invested grows at a steady pace. Thus it becomes an asset that promises returns in the long run.
4. Serves As An Income Supplements
Property can become a source of additional income when it is rented out, or save rental payments if owners opt to live in their own property. Though initially, the rent may be used for mortgage payments or loans taken to purchase the property, once the debts have been cleared, the rent is additional income to take care of some expenses, or be saved and accumulated for another investment.
5. Better Than Fixed Deposits & Bonds
These also are subject to changing interest rates and their long term returns are unpredictable.
6. Reasonable Returns
Financial analysts widely agree that the value of property doubles every seven years. If an investor is not greedy, this is a fair rate of return. Returns can also be earned by buying low and selling high, which just requires patience while the property value escalates.
7. Helps to raise loans for emergencies
Property is also the most acceptable form of collateral against which any bank or financial institution will be willing to give a loan whenever there is an urgent need to raise funds.
8. Property provides tax benefits
Owners of property enjoy tax benefits that convert into savings.
The bottom line is that property is an investment that can be seen and touched and not just a paper asset. It is there as a roof over your head when all other doors are closed to you. It should be the first big investment made and subsequent additions to the property portfolio can be done when surplus funds are available.
Upsides & Downsides of Property
(in no particular order)
- Tax Attractiveness
- Can See it – Bricks & Mortar
- Can Leverage Your Time
- Longer Term Wealth Creation
- Cashflow Gain
- Rapid Equity Creation
- Value Add Options
- Value Extract Options
- Cashflow Sacrifice
- Lazy Equity/Cost Of Capital Issues
- Realisation Risk
- Regular Inconsistency & Aggressiveness
- Cost of Upkeep
- Cost of Management
- Tenancy Risk
Where Do You See Property Investment Fitting in?
Property Investment should form an important part, of any Investors, strategic thinking around savings and investment. PropertyTutors review of the market is available at their Masters Event held twice a year.
A Video covering other reasons to be in property…