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.
- 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
- 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