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Investing in Property

Like all forms of investment property does carry risk. Real Estate is generally a 10 year cycle with various factors that can alter the cycle to some degree. A basic rule of thumb is that Real Estate usually doubles every 10 years. When a market is going through a boom period everything sells at a great price. However this is not the case throughout the entire Real Estate Cycle.

Top end properties carry the highest degree of risk due to very few buyers in the top end of the market and can suffer the biggest losses as a result especially in tougher times.

Somewhere around the Median Price is the safest form of property investment generally speaking due to having the largest market share of buyers. If people can afford it, they can buy it. Everyone needs a place to live and if you can’t sell a median price property you can rent it even easier in tougher times. The price of property only drops as a result of less people buying for whatever reason. These buyers are not camping, they are renting instead. When prices drop, the rental demand increases and the rent increases also as a result due to more demand. The RBA in an effort to pick up the economy usually drops interest rates as well which makes holding on to the property easier. As the rents increase buyers then come back to the market once they have had enough of being a tenant and increasing rents and so the cycle continues.

Savvy investors tend to buy 10 % below the median price as it offers the best return and capital growth with the smallest amount of risk. Often people in strong financial positions rent top end homes to live in but own a portfolio of properties that are 10% below the median price.

Among the advantage’s of investing in property is that you can enjoy greater gains through “gearing” safely. You can invest a relatively small amount of money that even if the % return is less than an alternative investment, due to the “gearing” more money can be made over the long term. A property is something that you can touch, feel, do your homework on and make an informed decision on yourself. If it’s not a good time to sell, you can hold and receive rent with any losses offsetting the money you have made going to work resulting in a tax cheque reducing the holding costs. People will always need a place to live.

When buying an investment property ensure that you have an understanding of the area that it is in and that you are buying accordingly.

The information above is general in nature and cannot be relied upon. Every situation and everyone’s own personal situation can be different. Independent professional advice should be obtained prior to making a decision on what is best for them.

By Tim McCollum