When it comes to deciding what to do with your hard earned savings, the choice between investment opportunities can be difficult. There are a number of factors that might convince a potential investor to invest in one opportunity over another.
In particular, property as an investment is something that has been extremely profitable for a number of people. With this being said, in deciding whether or not you should buy property as an investment, you should consider various factors.
The Risk Involved in an Investment in Property
An important factor in determining which investment suits your needs is the amount of risk you are willing to take. While some investors are extreme risk takers and like to put more of their investment towards something volatile such as cryptocurrency, others are more risk averse, and prefer to accept a lower return on investment with known risks as opposed to unknown risks.
In comparison to other investment opportunities such as crypto and shares, investing in property is relatively safe. With this being said, it doesn’t mean that there is not the potential for you to lose your investment. When considering the 2020 pandemic in particular, risk surrounding property is somewhat higher than it would otherwise be.
Volatility due to the pandemic has meant that Australian housing prices have dropped, open houses and auctions have been halted, and rent reductions have occurred. This might mean that you are tempted to invest, in anticipation of future price rises, however the pandemic also means that future price changes are uncertain.
Being Prepared to Pay it Off
One of the biggest considerations to make in deciding to buy a property as an investment is in terms of whether you are prepared to make the necessary repayments. These will likely take a significant chunk out of your regular income, while other investments do not require the same commitment.
Rent money will obviously contribute to these repayments, however it won’t cover them entirely. Plus, in the event of a vacancy (which is likely to happen at some point), you’ll be covering these repayments entirely.
If you are planning on putting down a deposit and making repayments on a property, you’ll want to know how much you will be paying on the mortgage – calculate it here.
Investing in a Property to Maintain Your Lifestyle
In many situations, investing in a property is often an alternative to buying a first home. If this is the case, this decision will involve a lot of thought in itself. However, a significant factor that increases the appeal of investing in a property is that it can allow you to maintain your current lifestyle.
Purchasing a property in an area you want to live in might be out of your financial means – if you want to live in a trendy area with parks, amenities, cafes, shops and entertainment, the cost of the property will be higher. Investing in a property can solve this problem as you can choose to invest in an area that is cheaper or more rural, and then continue to rent in the area you want to live in.
Don’t Overlook Maintenance, Upkeep and Management Requirements
Another factor that makes buying an investment property an involved process is the maintenance and upkeep involved.
This starts with the tenants – choosing the right tenants can be a difficult process, and one that is often ongoing. The right tenants need to take care of the home properly, be a positive contribution to the neighbourhood (you don’t want to be receiving complaints from neighbors), and make payments in a timely manner. Finding the perfect tenant is easier said than done, and depending on how long they plan on living in your property, you might be screening the next occupants sooner than you would like.
Regardless of the tenants, there are going to be maintenance requirements. Even the perfect occupants will come into some sort of maintenance requirement, whether it is to do with plumbing, the kitchen, or the general structure and quality of the property. Having to determine whether this is the fault of the tenants or not is another problem in itself, but ultimately you may end up having to pay for these maintenance costs.
Finally, you have to deal with the management of the property in general- this means taking the time to deal with the processes involved in finding tenants, performing upkeep, keeping neighbours happy, and more. On the other hand, you could enlist the help of a professional property manager – this is a more costly but convenient option, and will depend on your timetable, income and personal preference.
If you do buy an investment property, be sure to get a depreciation schedule prepared.