To buy, or to rent?
That is the question in 2017. With the housing market finally softening after years of growth, many investors are asking this question.
A recent economic study on pre-2005 data points to buying as the superior option, but unfortunately a definitive answer is not so clear cut. It’s easy to show how buying is beneficial with the benefit of hindsight, but realistically there is no way to know what the future will bring.
Working out a return on long-term real estate investment is a satisfying task that if done correctly, can result in financial benefit and security. It requires the consideration of several factors to reduce risk and maximise return.
Positive or negative gearing
Borrowing to invest is called “gearing” and the majority of investors will borrow to make a purchase. Use all the information at your disposal to calculate whether your investment will be positively or negatively geared.
If your income from investment is higher than your interest and other expenses, you are positively gearing. While this provides ongoing extra income and capital gain, the government will also apply tax to your net revenue.
Negative gearing, on the other hand, is where the income from your investment is less than interest and expenses. Be careful of focusing too much on the tax benefits of negative gearing without considering taxable income loss.
Without a doubt, your property will generate ongoing costs as repairs are needed over time. Assuming you are renting to a tenant, this is your obligation as a landlord – though it is also in your best interest for maintaining property value.
Consider how old the home is that you are buying, and how much cost you will be outlaying to keep it in good-shape. Every dollar you spend maintaining a home comes out of your return, though is a necessary to maintain tenants and overall value.
Deciding who manages your property will come down to how much time you have to spend. Managing your property yourself will save money on management costs, though also results in having to organise all repairs, showing the property to tenants, collecting rent and directly complying with landlord regulations.’
Using a managing agent from a respectable agency such as MMJ frees up your time and removes the stress of managing tenants. The fees you pay for this peace-of-mind are both modest and tax deductable.
Building insurance will cover you if your investment is severely damaged or destroyed by natural disasters or otherwise. If you are investing in an apartment, building insurance is paid through strata levies. Income protection insurance may also be necessary if you are negatively geared and using your salary to cover expenses.
Buying and selling fees
The payment of stamp duty, conveyancing fees, legal costs, search fees, and pest and building reports are all part and parcel of buying an investment in real estate. Later on, when selling, advertising costs, agent fees and capital gains tax will all deduct from your overall return.
Property investment is a stable, long term form of investment without the need for specialised knowledge. The key to good property investment is figuring out the right asset to invest in and ensuring it retains or increases in value.
Many investors will rent out their property with the aim of retiring in it later on in life, providing a secure goal to work towards while earning a separate income or renting.
For more information on the housing market, investment, or trends, call your local MMJ agent for professional, honest advice.