When selecting the next addition to your investment portfolio, be sure to consider all that you can reap from investing in real estate.
Any property investor has the potential to generate fantastic returns on their investments if they make their decisions wisely, but like any form of investing, you have to be aware of the other side of the coin too.
With property investment, you’ll also need to pay mind to the added costs associated with maintenance, taxes, and council rates, and you’ll also need to weigh up just what your potential rental income can be to ensure this cash flow can offset these added expenses. You’ll also need to assess your property’s potential to attract tenants, and gauge whether or not these tenants are likely to be long-term or more inclined to sign shorter leases.
It begs the question: how do you determine if putting your capital into real estate is the right move for you?
Here are some tips on whether the property market is your best choice.
Taxes on your asset
When it comes to property investment, it is wise to remember that a property is an investment that will inherently depreciate with every passing year. In truth, this is one of the many benefits of property investment, as it means that you can claim tax back for your investment’s natural wear and tear over the years.
Be sure to develop a property depreciation schedule for your investment to simplify the process of claiming tax refunds on your investment at the end of every financial year.
This detailed schedule will allow you to keep track of both your investment’s depreciation, as well as what tax benefits you’ll be eligible for, such as costs associated with existing building materials. Keep in mind, however, that materials you buy first hand have to be taxed at their original cost.
Incentives and deductions
When it comes to building a property portfolio, it can be good to remember that ‘big things often start from something small’.
Once you are ready, and preferably have your main primary place of residence, look at putting your investment property up for rent with a local real estate agency.
In addition, many things, from your rental income, like legal counsel for the preparation of the rental documentation, are tax-deductible from your taxable income.
Be aware of capital gains tax and real estate fees if you lease it through an agent, as you can add advertising for the property into your personal tax return.
Set plans and goals in place
When deciding to invest in property, the roadmap of where you see yourself and your investment in both the short and long term is important.
According to Michael Yardney, “many first time investors forget to plan and set financial goals.”
This is precisely why, when you go to build a portfolio, conducting independent research and approaching the task with an objective view are both vital to ensuring maximum returns on your investment.
The benefits of owning property
Investing in property is undoubtedly one of the most major financial decisions you’ll make in your life. Keep this in mind as you continue your search for your next investment, but do not let this deter you from taking the plunge. The many benefits to property ownership tend to easily balance out the nerves of signing your contracts.
The main benefit to being a property owner is that you have a major and physical asset, especially in the purchase of the land.
Furthermore, if you choose to buy in a developing suburb, it’s increasingly likely that your land will increase in value over time, and the value of the property will build, which increases not just your own personal equity, but also that property’s potential rental income.
It is wise to note that, whilst there are indeed risks, property investment can be comparatively far less of a risk than other investments.
What to do if the result is “No”
If for any reason your investment doesn’t go as planned or you decide that it’s not the right time for you to enter the property investment game, rest assured there are other avenues that you can take as an investor.
- Shares – these are among the most popular investments outside of property, as they are intrinsically a growth investment. Be sure to consult with an investment broker or financial consultants before buying any stock.
- Bonds – companies borrow from investors and pay interest. These pose a lower level of return, but also a lower level of risk.
Remember to always look at both sides of the coin when selecting your next major investment. You can get multiple incentives and own some high value assets, but no investment can be sound if you’re not well-prepared and well-organised.