Buying a property to rent out is a popular form of long-term investment. Houses and units are easier to understand than many other types of investments, yet they do have some issues you need to be aware of.
Some of the Pros and Cons of property investment
Investing in property is often seen as being less risky than other forms of investment, but it does have some potential pitfalls.
| Benefits | Pitfalls |
| Less volatility Property can be less volatile than shares or other investments. |
Cost Rental income may not cover your mortgage payments or other expenses, so you may have to find other money to cover the costs. |
| Income You earn rental income if the property is tenanted. |
Interest rates An rise in interest rates will mean higher repayments and lower disposable income. |
| Capital growth If your property increases in value, you will benefit from a capital gain when you sell. |
Vacancy
There may be times when you have to cover |
| Tax deductions Most property expenses can be offset against rental income, for tax purposes, including interest on any loan used to buy the property. |
Inflexible You can’t sell off a bedroom if you need to access some cash in a hurry. |
| Physical asset You are investing in something you can see and touch. |
Loss of value If the value of the property goes down you could end up owing more than the property is worth, this is known as negative equity. |
| No specialised knowledge required Unlike some complex investment s you don’t need any particular specialised knowledge to invest in property. |
High entry and exit costs Expenses such as stamp duty, legal fees and real estate agent’s fees make buying and selling property very expensive. |
Source: ASIC’s MoneySmart website, moneysmart.gov.au, 19th September 2016
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