5 reasons why property is the best investment you can make
By Wendy Bowman, Residential Sales & Investment Consultant, Harcourts Dunedin.
The idea of purchasing an investment property conjures a feeling of apprehension for many people.
What if tenants don’t pay their rent on time? What if they trash my property? It’s too hard — it’s not for me.
I disagree: it could be for you, just as much as it is for anyone else.
The rewards are plentiful and there’s no real secret — you just need to be willing to put in some time, research and dedication.
We’re starting to live longer than our money
By 2055 the average annual income will rise to more than $100,000. But the average person will live until they are 96 years of age and, for every person over 65, there will only be 2.7 people in the workforce paying tax.
There’s a real risk that we’ll soon be outliving our money, as our current retirement age and pension schemes don’t allow for our increased life expectancy. People need to start looking at other ways of preparing for their retirement.
There are three main ways of investing money to benefit for the future.
A term deposit or savings account is extremely safe. You’ll benefit from a small amount of interest — the current rate is around 3.5 per cent less tax — and the flexibility of withdrawal at any time.
Investing in shares offers potential risk but a higher return is also more likely. As with bank accounts, this is a liquid investment and once you sell the shares, you lose the income.
Property investment is the third main investment method and is considered low risk. There are many ways to initially purchase an investment property and although it is not as liquid as banks or shares, it offers substantial return on investment.
I truly believe that property is both the safest and most profitable investment you can make.
These are my five main reasons:
- You can afford it
Admittedly it is more difficult to borrow money for a rental property than for your own home — lenders tend to have more lower limits and more restrictions.
But you don’t need to have hundreds of thousands of dollars sitting in the bank to purchase investment property. You can borrow from the bank, use leverage such as the equity in your own home or save for the deposit.
- Financial freedom
Will the average pension of around $20,000 per year allow you to live the retirement you want? Schemes aren’t being revised in line with our lifestyles, inflation and life expectancy. I know I’d like to visit grand-kids overseas or inter-island, go on the occasional holiday and be able to afford basic costs like home and car repairs: a pension alone won’t allow for this.
- Passive income
Some call it “making money as you sleep”. I must admit, it’s not quite as easy as sleeping!
But the purchase of an investment property allows you to maintain a secondary income with relatively little effort. With tenants paying rent, you have a steady stream of cash coming in.
- Capital gain
In the current New Zealand market, property is in demand and that’s been driving values up at an astonishing rate over the past few years. The average property value in Otago at the end of 2015 was $282,000 compared to $300,000 at the end of 2016 — that should give you some idea of the organic increase in value we’re experiencing.
If the market continues this way (and we expect it will) it’s very likely that property you buy today will allow for considerable capital gain by the time you come to sell.
- Tangible assets
The beauty of real estate is that you can touch it and drive past and say “that’s mine!” And by renovating, extending or improving, you’re in complete control if you want to lease or sell for more to improve your return or final gain.
It’s true that investing in property isn’t cheap or simple — if it was, everyone would be doing it. But I’d encourage anyone to embark on a property investment journey as long as you are willing to put in the time and dedication.
Now you know the benefits of property investment, I want to share how to do it. In my next blog, I’ll explain the different professionals you should consult to ensure you’re safeguarding and futureproofing your property investment to achieve outstanding results.
In the meantime, please get in touch if you have any property investment queries or questions.