Buying a property to rent out is a popular form of long-term investment. Houses and units are easier to understand than many other types of investments, yet they do have some issues you need to be aware of.
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Investing in property is often seen as being less risky than other forms of investment, but it does have some potential pitfalls.
Property can be less volatile than shares or
Rental income may not cover your mortgage
payments or other expenses, so you may have
to find other money to cover the costs.
You earn rental income if the property is
An rise in interest rates will mean higher
repayments and lower disposable income.
If your property increases in value, you will
benefit from a capital gain when you sell.
There may be times when you have to cover
the costs yourself if you don't have a tenant.
Most property expenses can be offset against
rental income, for tax purposes, including
interest on any loan used to buy the property.
You can't sell off a bedroom if you need to
access some cash in a hurry.
You are investing in something you can see
Loss of value
If the value of the property goes down you
could end up owing more than the property is
worth, this is known as negative equity.
No specialised knowledge required
Unlike some complex investment s you don't
need any particular specialised knowledge to
invest in property.
High entry and exit costs
Expenses such as stamp duty, legal fees and
real estate agent's fees make buying and
selling property very expensive.
Source: ASIC's MoneySmart website, moneysmart.gov.au, 19th September 2016