Should You Invest in Real Estate?

If you had $200,000 to invest, for example: What do you do with it? Property or stocks?

You might desire to retire early or be on a search for financial freedom. Whatever your objective, deciding where to put your money requires thought. Although we believe buying a home is the most clear course of action, you can compare the historical returns and minimal risk of both stocks and real estate before making your choice.

In this article, we compare the advantages of investing in real estate vs equities, outline their historical returns and hazards, and discuss some additional considerations. You'll be able to decide then whether you wish to invest in shares or join the over 2 million other Australian investors who already own rental properties.

Remember that this is not financial advice provided in this post. It would be beneficial if you regularly discussed your unique situation with a licenced financial counsellor before making a choice.

Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.

7 Reasons why you should invest in property

Although we may be a little biassed, investing in real estate is a great method to unlock value and financial freedom for yourself with no risk.

Here are seven reasons why we believe purchasing real estate is a superior choice.

1. Tax benefits

One of the major advantages of investing in residential property is that even if the rental revenue falls short of covering all of the costs, there is still a tax break to help. This increases the value of the tax advantages of real estate investment.

Everything you had to pay out of pocket at the end of the fiscal year, including loan repayments, council rates, and utilities, can be deducted from your taxable income.

On find out exactly what you can write off for your investment property, see our in-depth guide to investment property tax.

2. Capital growth

The nice thing about real estate, especially in Australia, is that its value is likely to increase as long as you have patience. In the past 25 years, the Australian real estate market has grown and expanded by a whopping 412 percent.

The idea that "a property will double in value every ten years" is prevalent nowadays. Of course, this does occur, but you'll probably be let down if you approach the real estate market with those expectations. Even so, revenues can be significant over time, which contributes to the ease of obtaining a mortgage for a home since banks view real estate as a very safe investment.

What's great is that, as long as your finances permit it, any moment is generally a good time to invest when you have a strategy for investing over time. Never forget that investing over time is preferable to timing the market.

To learn why timing the market is the best way to approach your investment adventure, read our article on how to determine whether it's a good time to invest in real estate.

3. Retire early

One advantage of investing in real estate is that you can realise your ambition of retiring early and surviving only on rental income. You can get a substantial monthly income to live off of if you own several properties.

To have an after-tax stream of $75,000 a year, you'll need to own roughly $3 million worth of a real estate. You could invest in a home with a higher value, hold it for a while, and then sell it later and live off the capital gain. However, preparation is key when it comes to retirement planning, and this isn't the most secure choice.

You need to keep tabs on the following:

• Length of time required to pay off your mortgage (this will tremendously open up your cash flow)
• How long will it take for home prices to increase to the level you desire them to be?

4. You can hire a property manager to take the hassle out of it

If you hire a property manager, one benefit of investing in real estate is that it doesn't consume much of your time. You can hire a professional to handle the more labour-intensive tasks, such as scheduling inspections, screening possible tenants, and collecting rent, for a relatively low cost of only a few hundred dollars per month at most.

The only issue is that property managers' levels of customer service vary greatly. Before you employ a property management, we urge you to read our guide on doing so.

Read our in-depth guide on everything you need to know about property management if you're not entirely sure what a property manager is or does.

5. Passive Income

The ability to convert investment property into a second source of income is another advantage. You might potentially earn more money each month without doing much work if you decide to gear your property favourably.

Feeling more financially accessible can be greatly improved by having an additional source of income.

6. Leveraging your equity

Once you have one investment property under your belt, employing the straightforward strategy of leverage, growing your portfolio becomes more affordable and manageable.

Let's say the value of your first investment property has increased, increasing your equity. After that, you can refinance the house and use the extra equity as a down payment for another investment property. It's a fantastic method to avoid the hassle of pinching pennies and saving money for a down payment.

To find out more about this, see our guide to creating a property portfolio.

7. You can increase its worth

The ability to directly influence the growth of your investment's value is another benefit of purchasing real estate as opposed to securities.

There are numerous methods for increasing the value of your property.

• Fresh painting
• Replacing worn floorboards
• Renovations to the kitchen or bathroom
• Making a granny flat and other things.

Read our post on improving property value with rental renovations if you think this sounds intriguing.

How much does it cost to invest in real estate?

The fact that buying, selling, and just owning and maintaining an investment property come with a lot of associated fees along the road is a huge disadvantage of investing in real estate. Compared to stocks, this makes it more difficult to save money.

Upfront costs

It can be simple to focus only on a property's purchase price and ignore all the other, less evident costs associated with it. The following are some of the up-front expenses you'll incur on a property valued about $1,000,000:

• Valuation fee: $300
• Stamp duty: $42,000
• Legal fees: $100
• Lenders mortgage insurance: $20,000
• Loan fee: $700

Ongoing costs

Imagine that you've done your homework, purchased the ideal investment property, and rented it out. Next, what? Of course, there are holding charges. You must take care of the recurring costs if you want to make your investment a successful one. You should prepare to pay:

• Mortgage repayments (apprx. $3845/month, borrowing 80% on a $1million property at 3.1% interest)
• Electricity: $1627 p.a.
• Water: $984 p.a.
• Gas: $904 p.a.
• Home insurance: $1117
• Council rates: $708
• Maintenance: Using the 1% rule, operating costs should equal 1% of your property’s value each year.
• Property manager: 5%-11% of your weekly rent

These figures are averages for NSW. The cost in your state can be a little different, but it should still be close to these costs.

The verdict: Is it worth investing in property?

Real estate is a highly intelligent investment if you want to retire early or have long-term financial security. Although the large initial fees can be difficult, it's a very safe investment that offers a number of advantages like simple access to property financing, tax advantages, and more.

Purchasing a property and working with a property manager to hold it for 7–10 years is a terrific option if you have money to invest, but stocks also have their advantages because they require less capital.

How Do Infrastructure Developments Determine the Success of Your Property Investment?

Successful real estate investors adopt their tenants' perspectives.

Let's do that, then. What qualities are important to you in a home? You're probably looking for areas near public transportation, neighbourhood schools, quaint businesses, pleasant cafés, and green areas.

The same holds true for your tenants.

The key to finding the best neighbourhoods in Australia to purchase an investment property is to look for areas with a lot of existing infrastructure. Researching up-and-coming communities with strong infrastructure development potential is also important for investors.

For a series on building your real estate investing portfolio, we spoke with Domenic Nesci, Co-Founder of Wealthi.

In this second instalment, we'll discuss how to do real estate market research by examining infrastructure developments and how they might enhance your portfolio of properties.

We've provided a list of suggested resources at the conclusion of this blog post to assist you in researching existing and upcoming infrastructure changes in your local marketplaces so that you may put this knowledge into practise.

How to determine if an area offers high growth potential

You can increase the number of properties in your portfolio of investment properties by generating high rental returns. The solution lies in choosing properties in high-growth locations too carefully.

But what triggers an asset's growth?

Infrastructure in a suburb holds the key. Tenants have greater demand in areas that are better linked and serviced (which ultimately drives up how much you can charge in rent).

But the reality is that infrastructure already in place is not everything. Consideration of what will be built in the future might be beneficial.

Let's go over the two phases you must take to assess a region's potential for growth.

Step 1. Research existing infrastructure

In order to determine how much you can charge for rental properties, you should first investigate the area's current infrastructure. Tenants seek apartments with good connections and convenient access to neighbourhood amenities, as previously indicated.

If you're unsure how to investigate the real estate market to find existing infrastructure, consider the performance of the rental home in terms of:

• Education: Young families will place a high importance on being close to elementary and secondary schools, while young people and couples will need to be close to colleges.
• Health care: Take into account how close the property is to local pharmacies, GPs, physiotherapists, and even how far it is to the nearest hospital.
• Employment: Domenic advises investors to consider commute times, traffic conditions, and how streamlined the journey would be (for instance, are numerous modes of transportation required to travel from point A to point B?).
• Transport networks: In a similar vein, tenants will be attracted in large part by the ease of using public transportation (especially if the nearest bus, train or ferry station is a short walk from their front door).
• Lifestyle amenities: The ideal investment property locations will be close to cafes, bars, and restaurants as well as neighbourhood stores, parks, and fitness centres.

The best indications of demand in a suburb are those. Having said that, we'll provide a little-known business tip.

"We enjoy keeping an eye on Bunnings, Woolworths, and other large institutional businesses that rely on demographic data. They can predict where growth centres will be since specific population controls or a certain number of people must be present for a store to be successful, active, or run. That tick is a smart way to identify areas of growth."

Domenic Nesci, Co-Founder of Wealthy

Step 2. Research upcoming developments

Smart investors, though, don't wait to buy in established suburbs. Instead, they invest in real estate that is expected to appreciate before it actually does. Despite how easy it seems, many people still misunderstand it.

The government must build sufficient infrastructure for jobs, healthcare, education, and accessibility to those things as a duty to its people.

So you know that a suburb that is expected to grow will eventually become more developed.

You discover one of the top investment property opportunities in your neighbourhood by looking for places that are planned for development. That is a signal for you to seize a wonderful window of opportunity for progress.

The following developments should be noted:

• New roads and transportation infrastructure are maintained by municipal and state governments, whose websites make it simple to download reports outlining any future transportation enhancements.
• Access to new educational projects, such as envisioned campuses for universities and schools, is provided through CoreLogic's Cordell Connect database.
• Industrial parks that are newly constructed are centres of employment that may signal an increase in work prospects (and, therefore, a rise in demand). Once more, check out the Cordell Connect database of CoreLogic to learn more about any proposed industrial parks for the suburbs where you're considering making an investment.

"You may predict with some degree of certainty that this sector will improve if you can name two or three further developments that will significantly alter people's lives. People will want to pay extra for the property, either in rent or as a buy."

You may leverage these developments as major selling factors to demand a premium for rent by doing your homework on the neighbourhood and understanding what projects are in the works.

How do new developments impact the price and demand for a property?

In the opinion of tenants, a hot property isn't determined by its postal code. Instead, what matters and enhances the appeal of the suburb are the nearby developments and amenities.

Therefore, it is not surprising that demand and prices rise in areas with new infrastructure and improvements.

Use this advice for real estate investing to your benefit. You can find more tenants and demand a higher rent price by looking for rental houses in well-connected areas with lots of schools, shops, and work prospects.

Recognising and predicting these longer-term trends is much simpler if you have your finger on the pulse and can see where things are headed.

Should you consider buying off-the-plan developments?

Investors must carefully consider whether to buy an existing home or an unfinished one because making the wrong choice can expose you to large losses. When it's not a good idea to purchase off the plan, you run the danger of jeopardising your financial stability.

That's because not all off-the-plan developments are constructed in suburbs with good infrastructure. Additionally, the high construction costs and possible overstock may result in poorer returns and less room for capital appreciation.

Let's examine all sides of the question to see whether going off-the-plan is the best course of action for you.

The pros of buying off-the-plan

An off-the-plan property can be the best option for investors seeking for a set-and-forget investment that requires nothing in the way of upkeep or repairs.

Investors frequently choose these properties because they have brand-new fixtures and fittings and can attract top-notch renters with the disposable income to pay a premium for a rental.

The following are the key advantages of purchasing an off-the-plan property:

• Tax benefits: By hiring a quantity surveyor at settlement, you may make a complete depreciation schedule that will make it simple for you to claim tax deductions on your property's fittings and fixtures at your upcoming tax return (and potentially lower your tax bill).
• An off-the-plan home can be a simple turn-key solution to unlock a passive stream of rental income if you don't want to spend time upgrading an investment property or doing upkeep and repairs.
• Investors who are wanting to expand their real estate investing portfolio can profit from a brand-new property that enables them to achieve high rental yields with little time or effort. This is a simple alternative for a second investment property.
• Minimal repairs: With brand-new construction, you may significantly reduce the time, effort, and expense of maintenance and repairs (often the case of older, established properties).
• Possibility of growing property values: If you invest in an off-the-plan property at the correct moment, it can appreciate in value and nett you a profit when you decide to sell it.
• Stamp duty exemptions: One of the main benefits of buying off-the-plan is the allure of large savings on stamp duty. The offer-the-plan benefits vary by state, so visit the website of your state's government to see what waivers are available.

Off-the-plan properties, according to Domenic, are a fantastic choice for passive investors wishing to expand their real estate portfolio due to the mix of tax advantages, minimum maintenance, and brand-new construction.

"Why not begin with a high-quality, recently acquired asset? You'll receive a good depreciation that you can put towards the purchase of your second, third, or fourth investment property "informs Domenic.

The cons of buying off-the-plan

On the other hand, buying an investment property off the plan does come with additional expenditures that many novice investors could find difficult to cover.

Here are some disadvantages to think about:

• Paying a premium: According to Domenic, off-the-plan homes can cost more because you're purchasing a brand-new, luxuriously built home. Additionally, if you buy an apartment, you can also be faced with higher strata fees to pay for the upkeep of this brand-new complex.
• Construction delays: In some circumstances, it may take longer than originally anticipated to complete the construction. These delays reduce the rental income that investors like you receive and can impede your efforts to amass a profitable real estate portfolio.
• Potential for oversupply: If additional apartment buildings are constructed nearby after you purchase a property, there may be an imbalance between supply and demand, which could lower the value of your home.

An off-the-plan home may still meet your investment objectives if you're willing to make a larger initial investment and tolerate the risks of other projects impacting prices.

To make sure you're not spending too much on your investment property, it's crucial to conduct research into planned structures and other off-the-plan developments in the neighbourhood before making a purchase.

You may simply get access to any proposed developments that can affect the market value and rental yield of your property with resources like CoreLogic and Cordell Connect.

Your resource list for researching the current and future infrastructure developments

Here are three trustworthy sources for infrastructure and development statistics in Australian suburbs to help you make your next investment decision.

For identifying upcoming developments

Cordell Connect gives investors useful information on impending residential, commercial, and industrial developments in various suburbs, but access to their database requires payment.

These studies can help you research new investment alternatives, such as childcare facilities and apartment buildings, and make sure your next step is well-informed.

For reliable suburb reports: CoreLogic

For knowledgeable investors to get a hold on property yields and market conditions in key places, CoreLogic's data is a go-to resource.

Again, entry to this site requires payment, but you'll receive access to suburb and property profiles that show property valuations and projected rental returns in Australia's big cities.

Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.

For planned community infrastructure

Visit their summary of the 2021–22 budget for a quick look at how much money the federal government expects to spend on infrastructure over the next 10 years. Similar information can be found here in any other year as well.

A list of upcoming projects for the following 12 months, including road upgrades, new public transportation routes, and more, is also provided below, broken down by state.

Investigating future infrastructure developments is a crucial step in deciding if your real estate investment will be a success. The supply and demand, as well as the potential for income and capital growth of an investment property, are all significantly influenced by proposed activities.

You'll draw in top-notch tenants, be able to charge a premium for rent, and earn passive income to expand your portfolio more quickly if you choose a rental in one of Australia's finest growth neighbourhoods close to new infrastructure.