Acting on a New Year's resolution - buying an investment property

GUEST OBSERVATION

As 2015 begins, many of us will undertake the annual ritual of enacting a new set of New Year resolutions.

Common resolutions (some kept, many broken) that are guaranteed to come up again in 2015 are spending more time with the family, volunteering, getting fit and reading more books. But what about increasing your wealth?

Improving one’s financial position is a common resolution and there are many different ways to go about this, such as investing in shares, property, bonds or funds.

Being a real estate agent, my area of expertise is of course, property. Here are some of the pros and cons of buying an investment property in the New Year.

One of the most obvious benefits of buying an investment property is earning rental income. Rental income can act as a significant supplement to your regular income, providing you with the financial means to improve your quality of life, save for the future, or even invest further.

While this increased income is a huge drawcard, it’s important to remember that owning an investment property can pose challenges too. Realistically, there will be times when a property is vacant, resulting in no rental income, even though you have to keep up with your repayments if you’ve taken out a loan.

While most tenants pose no issues, unfortunately, sometimes a property does get damaged or rent is paid late. The simplest and most effective way to manage vacancies and tenants is to hire a quality real estate agent to handle the property management on your behalf. It’s also better for your tenants as it allows them to easily access information and assistance seven days a week.

In addition to earning from rental income, by being strategic about the investment property you buy, you can also benefit from capital growth. To ensure you buy an investment property with the right profile to achieve strong capital gains, it pays to be thorough in your research, both of the individual property and the local area. It is also worth noting that many property expenses can be offset for tax benefits.

Equity markets can be volatile, making investing in property a safer and less unpredictable investment. Due to the relative stability offered by buying an investment property, it is becoming an increasingly popular investment for those with self-managed superfunds (SMSFs).

Holding property in a SMSF offers excellent tax benefits particularly in regards to capital gains tax. The recent revision of Australia’s super rules means that it’s now easier for Australians to invest in property using their superannuation.

By ensuring that you can effectively manage your property, whether that be personally or through a real estate agency, the potential rental income and capital growth of an investment property can prove incredibly financially rewarding, both in 2015 and the future.

Now, what were those other resolutions…?

Julian Augustini is director of Hodges Brighton.