Overview

Residential property has always been a popular investment option in Australia. It is an asset class that historically, over the long term, has produced satisfactory returns for a lot of investors. Arguably, it could be said that property has made more people wealthy than shares and it can significantly affect the wealth of the small investor as there is the potential for growth and even more beneficially for the investor, growth with the bank’s money.

The first question you need to ask yourself is why do you want to invest in residential property as opposed to getting the apparent better returns in commercial property or shares.

Let’s look as some of the advantages and disadvantages of residential property investing.

Advantages

 Low volatility

There is no daily fluctuation of price, making it easier for you to ‘stick with’ your investment plan.

 Long term

Investing in property is a long term wealth creation strategy that can provide investors with consistent returns over the long term.

 Capital growth

Because the bank provides most of the funds for a property purchase, there is considerable leverage and your capital growth returns can be considerable.

 Taxation

There are considerable tax advantages for residential property. If you hold a property for more than 12 months then the 50% capital gain discount applies when you sell. If you live in your property then generally there is a full capital gains exemption. If you purchase an investment property, there may be tax advantages each year if the property in negatively geared.

 Rent increases

Legislation protecting both the landlord and tenants means that rent increases can be negotiated and need to be reasonable. The Australian government social welfare policies means that residential property investors can still increase rents where they rent to low income earners because rental assistance through Centrelink is based on market rates.

 Demand

In Australia there appears to be an ongoing housing shortage. National Housing supply council reports indicate that not enough homes are being built by the public and private sectors. This should mean that demand for rental properties should keep rents growing and house prices stable. After all, every one needs somewhere to live.

Disadvantages

  Valuation

You don’t know the exact value of your property unless you want to raise more equity or sell it.

  Liquidity

If funds are needs in the short term, property is not an asset that you can quickly liquidate or just sell a small portion.

  Costs

The costs to buy and sell are quite high for residential property. Stamp duty, mortgage registration and agents cost all need to be taken into account.

  Locality risk

Buying in the wrong location is a real risk for residential property. While other areas are steadily increasing, a wrong location can be stagnant affecting an investor’s return over the long term.

  Interest rates

Interest rates play a significant part of the costs of owning a property. When interest rates rise, investors need to be able to bear the brunt of the increased payments.

  Negative gearing

If a rental property is negatively geared, then the investor needs to find the difference each month between the income and the expenses.

Property in a SMSF

We hope the above has provided you some information on investment in Property as part of your overall plan when considering as an investment in your overall Quantum Wealth Plan.

You can use your Super to buy Property. Typically you need to setup a SMSF and arrange a loan, see below and this link https://www.quantumwealthplan.com.au/finance.php#SMSF_Loans, to see how to buy property in a SMSF.

Or you can download the pdf on SMSF - How to Buy a property -


SMSF Property Q & A


SMSF Gearing
How to buy property in SMSF ?
Buying vs Renting
Quantum Wealtl Plan - 4 Stage Process

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