Creating wealth for later in life is a goal most of us embrace and spend our entire working lives trying to accomplish. And for the vast majority, property investment is a huge component of their strategies.
Many young people today feel the idea of owning property is beyond their reach.
However, there are strategies to conquer the challenge of affordability, such as becoming a “rentvestor” – a buyer who rents out the property and remains a tenant elsewhere.
This is a common approach for those priced out of the metro markets but willing to buy in regional areas.
Given how much home values have increased in the last few years, wanting a piece of the action is a smart move. It’s a proven approach to wealth creation and less volatile on a day-to-day basis than stocks and bonds.
It’s also pretty hard to get a loan to build a share portfolio, whereas a home loan is more attainable because it uses the asset as collateral.
So, below, we’ve put together some of the pros and cons for investing in real estate. The bottom line is that we believe you’ll be investing in a secure and steadily appreciating asset for the long-term by purchasing real estate.
- Tangible asset: At the end of the day, stocks are digitised pieces of paper whose values ebb and follow within seconds. Property, by comparison, is insulated from this type of volatility.
- Inflation protection: The value of property has a decades-long history of being a hedge against inflation. So, except for the occasional downturn, you won’t see the capital value of your asset being eroded away.
- Equity Access: Over a period of time, you can pay down your mortgage and access the equity to purchase another property, or even invest in the stock market. So, it gives you flexibility. All your equity does not have to be tied up.
- Tax Benefits: By delivering a much-needed rental property onto the market, you are eligible for tax benefits associated with expenses incurred by ownership. Always use an accountant to leverage these benefits.
- Slow Liquidation: Here’s the first pitfall. You can’t just press a button and sell. So, if you need the cash quickly, property is not going to deliver.
- Ownership Overhead: All property must be maintained. So, you will need to spend cash to fix issues, or contribute to a common fund managed by a strata committee if you own an apartment. On the upside, these expenses are tax deductible.
- Rule Changes: If you fancy being a rentvestor using the Airbnb business model, be aware that local government rules can change quickly. New York, Paris, Berlin and Barcelona are just four global cities that have banned short-term renting. If this is your play, understand the risk.