Advantages + Disadvantages of Investment Properties

Purchasing an investment property can be a very exciting time and can help build your wealth over time.  However, before rushing out to buy an investment property, it is important you consider the pros and cons.

ADVANTAGES

  • Provision of rental income to help top of other income
  • Help reduce income tax if the property is negatively geared i.e. the rental income is less than the interest on the loan
  • Potential capital growth in value of the property
  • Can be less volatile than shares or other investment options

DISADVANTAGES

  • Lack of investment diversification
  • A lot of money is tied up in one asset that can take time to sell
  • Buying and selling costs can be high
  • Tenancy risk. There is a chance your investment property will have periods of time where it is not tenanted.
  • You are responsible for all ongoing maintenance
  • Capital gains tax will be payable if the property is sold at a profit
  • Interest rate risk – a rise in rates will result in higher loan repayments and a potential reduction in net income
  • A substantial amount of capital is required from the outset

As always, we encourage you to seek professional advice to ensure the decision is right for you.

 

Samantha Butcher – Financial Adviser

BComs Dip FS