The top 10 benefits of investing in property

Investing in property can be a fantastic strategy to grow your wealth and achieve financial independence. Yes, the property market has been on a bit of rollercoaster ride in recent years, but there are many advantages to investing property.

Here are 10 benefits of investing in property:

1. Invest for capital growth and use rental income to boost your affordability

Investing in property can provide you with two separate returns; capital growth and income. This simply means your initial investment has the potential to increase in value over time and (assuming the property is rented) provide you with a source of income. Arguably capital growth is the main driver to invest in property because after all, if a property doesn’t appreciate in value, then neither does your wealth. However, this is not to say that income isn’t important too. Assuming borrowings are used to fund your purchase, rental income can be a key factor in determining your affordability. This is because rental income can be used to offset the costs you incur with holding the property, such as loan interest, insurances and rates. In other words, if you weren’t receiving rental income from your property, your out-of-pocket expenses would be greater and as a result, you may have to borrow a lesser amount. The more you can borrow, the more profit potential.

2. Gain access to high levels of leverage

Compared to some other investments, you can borrow a lot of money to purchase property. For instance, it is not uncommon to finance 80% of the purchase price and sometimes it is possible to finance in excess of 100% (i.e. the purchase price plus transaction costs such as stamp duty). Therefore, by investing in property, you can gain access to a highly valuable asset with capital growth (and income) potential for very little (if any) capital outlay. This frees up your capital for use elsewhere.

3. Borrowing is cheap

The interest rate on property loans is often less than for other investments. Generally, this is because:

a) A lender will use your property as security for the loan (i.e. a mortgage). This means if you default on your loan and can’t repay it, the lender has the right to sell the property, and

b) Property is more secure than some other investments (i.e. fluctuations in value are less). Because of this, there is less risk for the lender to recoup their money if the property has to be sold in the event of you defaulting.

Borrowing to invest in property can therefore be a more cost-effective strategy to build wealth than for other investments.

4. Investment choice

You have many options when investing in property; new or old, house or unit, established or off-the-plan, building and land or land only, city or country, single or multi-storey and so on. Each option will have its own pros and cons. For instance, a new property may offer higher levels of depreciation but an older property may be cheaper to purchase, a unit may attract a higher rental yield but a house may have greater capital growth potential and an off-the-plan purchase may have fewer transaction costs to purchase but you can see what you’re buying with an established property. Whilst so many options may seem confusing (and perhaps off-putting), having such a broad choice is actually a good thing. Different investors will have different objectives, so you can tailor your property purchase to suit what’s important to you.

5. Choice of ownership structure

Property is a very flexible investment in terms of ownership and can be purchased under a range of structures including solely, jointly, as tenants in common or via a trust, self-managed super fund (SMSF) or company. Each structure has its own unique characteristics (e.g. tax, estate planning, borrowing, asset protection and accessibility considerations). Like when you’re choosing what kind of property to buy, a choice of ownership structures means you can determine which structure suits your objectives before making your purchase.

6. Stable returns

Whilst property values have decreased from time-to-time, historically, they have fluctuated less compared to some other asset classes. Investing in property may therefore allow you to reduce the overall volatility (i.e. risk) of your investment portfolio whilst maintaining capital growth potential.

7. Ability to unlock equity

As your property increases in value over time, so does your equity. Lenders will generally allow you to borrow against the available equity in your property to fund other investment opportunities. Alternatively, you could draw-down a loan against your equity and retain the proceeds to provide a cash reserve or a buffer for emergencies. Either way, you have the ability to put your unused equity to use elsewhere.

8. Reduce income tax through negative gearing

Investing in property can be an effective strategy to minimise the amount of income tax you are paying. This is because properties attract a number of upfront and ongoing expenses which can be tax-deductible to you. Deductible expenses are subtracted from your assessable income to calculate your taxable income (i.e. the amount on which you pay income tax). A property is negatively geared where the ongoing costs (i.e. expenses) exceed the income (i.e. rent) received. This situation gives rise to a cashflow deficit (i.e. a loss) which is classified as an expense with holding the property and may also be claimed as a tax-deduction. The more deductions you have, the less income tax you pay. Generally speaking, the higher your salary, the more effective negative gearing becomes.

9. Create a passive income through positive gearing

Properties may also be positively geared. This is simply the opposite of negatively geared, that is, rental income received exceeds ongoing expenses. This means that your property is putting money in your pocket and is therefore a passive income stream. Additional income means you will have more surplus cash flow and your borrowing capacity may increase (e.g. if you were looking to purchase another property). However, you need to be mindful that the extra income derived from your property will be subject to income tax.

10. Arrange a tax variation with the ATO

As mentioned above, investing in property often gives rise to a number of ongoing tax-deductible expenses. Ordinarily, you would meet these expenses over the course of the year and then claim them at tax time to receive a refund. Whilst there is nothing wrong with this approach, you need to be mindful of meeting these costs from a cashflow perspective during the year (i.e. you won’t receive your refund until the end of the year). To ease the burden on your cash flow, you can arrange a tax variation with the Australian Tax Office (ATO). In simple terms, this means the ATO will reduce the amount of withholding tax deducted from your salary to reflect the end-of-year deductions you’ll be claiming. Effectively, the ATO are providing you with a pro-rated tax refund over the course of the year which means you won’t be out of pocket as much when paying your ongoing property expenses.

However, before you invest in property you should ensure it is suitable for your individual circumstances. To find out if investing in property is right for you, contact your financial planner.


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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