Ask a different question
With the events and respective uncertainty that Covid-19 has brought to us this year there is a question that is being asked all the time.
“Is property still a good investment in 2020?”
To answer this question I would ask...
- Are you prepared financially should you need to stop working?
- As the average superannuation at retirement is not enough, do you have a plan B?
If the answer to either of these questions is “no” then there is one more question to ask yourself:
- What can you do to put yourself in a better financial position for your future?
For the average Australian family, residential property investment is really the only way to build a nest egg outside of superannuation, and there are many reasons for this.
- It’s accessible: banks are willing to lend you up to 80% of the purchase price.
We don’t often stop to think why a bank would be prepared to lend so much. They don’t believe they’re likely to lose their money on it. Where else can you borrow 80%?
- It’s a business partner who won’t ask for a cut I always like to say that investing in residential property is like going into business with the bank. They will put in most of the money, and while you have to pay back interest on the loan, they don’t ask for a cut of any profits you make from the property.
- It’s a relatively stable asset class, with a long track record of growth A relatively small proportion of residential property is traded each year, and there is a long track record of capital growth. In Australia, most of our population lives in the big cities, where land is scarce. If you have patience, in my experience across a few property cycles, property tends to be a forgiving asset class even if you buy at the peak of a cycle or pay a little more.
- Leverage & compounding effects
Say you buy a $500,000 property with a 20% deposit ($100,000) and after 15 years it doubles in value. That means your initial $100,000 deposit has the potential to deliver you an asset worth $1 million (not even including rental income) – an incredible return of investment.
- Rental income
Apart from the capital growth that can be achieved longer-term on a property, your property will also provide a rental income. Your tenant will pay most or perhaps even all your mortgage – especially today with the cash rate so low.
- Tax savings/rebates
Due to certain unique tax advantages in Australia, property investors can make a number of deductions and/or negatively gear investment properties. With the significant depreciation deductions you can make for new properties in particular, the tax savings can be substantial. Also, because property is tax deferred, it means you don’t need to pay capital gains tax unless you sell. In the meantime you can still access any gains by releasing equity to purchase additional assets and grow your nest egg further.
All of the above continues to apply in 2020. If you are financially ready, it is still a good time to start investing for the long-term.
Every city market is different, and even within each city, there are micro-markets operating at a suburb/regional level – there is opportunity, but you need to know where and what to look for.
But overall, the real question you should be asking yourself, if you are sitting on the sidelines or waiting for the market to ‘bottom out’ is not about which property should I buy. As we often say to our customers ‘buying a property’ is not the same as investing in property for the purpose of building wealth.
The real question to ask is: “Where am I at today and where do I want to be in 15-20 years.”
From there it is a question of sitting down with a professional to put a team and strategy in place to help you move forward. Don’t forget: like any important pursuit, you don’t have to do it alone – it doesn’t have to mean endless Saturdays of property inspections. Leverage the time and expertise of people who do this every day.