Top 5 Reasons to Invest in Residential Real Estate
Investing in residential real estate has and continues to be a sought after venture. With the premise of owning your own investment property as a source of security and an investment for future wealth.
So what are the reasons to invest in residential real estate? We’ve broken it down into 5 key areas.
1. Real Estate Is a Stable Form of Investment
When compared with other investment options residential real estate has come out on top over the past 20 years.
According to the ASX/ Russell Investments 2018 Long-Term Investing Report:
“For the 20 years on a gross of fees and tax basis, residential property was the top-performing asset class, followed by Australian shares, global shares (hedged) and global listed property (unhedged), “
Yes it does go up and down and there is no guarantee of success at the end of your investment term, like any form of investment, but from the past, we can see that for many investors it has provided excellent returns.
2. You Can Borrow Against the Asset
If you invest in shares, for example, you can’t borrow against them as they can move up and down in value very quickly.
With property you can, as the value of property typically remains more stable and historically doesn’t change very much too quickly.
In the share market, traders can buy and sell online and respond to news or trends straight away. Whereas with property, the process is much slower and each individual market can vary depending on the demand. There is typically much less volatility.
A sound investment property may allow you to invest in more property and potentially make a larger return on investment over the long-term.
3. Tax Benefits
Some of the costs associated with owning investment properties may be tax-deductible, including losses arising from negative gearing.
This makes it more attractive to own an investment property as you are less likely to be out of pocket. These tax benefits encourage more people to buy and build property contributing to growth in the economy.
4. Helping The Local Economy
Purchasing an investment property can help stimulate the local economy.
Let’s take the example of purchasing an off the plan property.
In order to allow tenants to rent such property, someone has to first buy that property from the developer.
Therefore it could be argued that the party purchasing the property is doing their part to help the local economy.
By buying a property, the landlord helps both the developer who has invested time and resources into building the property, as well as the tenants of that property, who now have somewhere to live.
Particularly as the population grows there needs to be housing to support the growing demand.
With the decrease of interest rates globally there is a shift from fully owning a property to mortgaging homes. Meanwhile, the percentage of renters has remained much the same.
New dwellings built would need investors to maintain such demographics. Investors prove vital for projects to kickstart and in turn to shelter growing populations.
It’s not just about the money, as there is a social benefit to building property. As new communities are built, new services and amenities are also developed including local schools and hospitals.
5. Financial Freedom & Passive Income
If you buy wisely you can own an investment property that brings in a strong rental return.
As your mortgage balance lowers you will have more cash flow from the rental property, allowing you to enjoy an income to spend on something else other than the mortgage.
When you pay off the property and still have tenants renting, it becomes an excellent source of income. This effectively gives you a passive form of income, especially if you have a property management company managing the property on your behalf.
Investing in residential real estate can bring excellent long term returns, particularly when you have a solid investment strategy in place.
Thinking about investing in residential real estate? Get in touch and we can give you a call to discuss how we can best assist you with your investment goals.
