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On the surface the Australian love affair with investment property is puzzling.
Blogger: Sharon Fox-Slater, general manager at RentCover
Two thirds of investors lose money each year, shelling out thousands more on related expenses than they receive back in rent, according to the Australian Taxation Office.
Sure, negative gearing rules mean investors can share their loss with the taxman, but they still end up paying at least half of it themselves.
Property managers who know what is driving each landlord can help make more tailored decisions to suit.
For example, a wealthy capital gains-focused investor may be less fussed about charging maximum rent, especially if it helps them to retain a good tenant. A fearful investor may be particularly reassured if they understand what processes you go through to ensure their property is being looked after. And an investor who plans to develop their site will want to minimise their outlay on repairs wherever possible...
So, what’s driving the Australian love of investment property?
Hope of profit via capital gains
We’ve seen first hand immense rises in property prices over the past few decades, despite some pauses and reverses in the market here and there.
Just thinking about how much money we would have made if we’d invested in grungy suburb X, Y or Z 20 years ago can set us salivating – and searching for today’s equivalent.
There are extra expenses whenever a property is bought or sold, so a negatively-geared property needs to increase in value just for an investor to break even.
Control over retirement
For some investors, the appeal is not so much about the potential for capital gain as the certainty of rent coming in once the loan has been paid off to help fund retirement.
For older generations, property investment was one of a few realistic avenues for a better-than-pension retirement in a pre-superannuation world.
Gen X and Gen Y will also need to invest outside the superannuation system – whether that’s in property or another asset class – if they want to have any prospect of retirement before the age of 70.
For our children
Having a fully-paid roof over your head is great for your peace of mind. Unsurprisingly, that sense of security is something many of us want for our children.
Some parents who see rising house prices and fear their children will never achieve home ownership buy an investment property so each child can, in time, inherit a home.
Renovation and/or development potential
The plethora of renovation television shows demonstrate the psychological appeal of using “sweat equity” to improve a property’s value, regardless of the wider property market. Property investment can be particularly appealing to tradies with the skills and contacts to make valuable changes without spending too much cash.
Fear of alternatives
Many people who would be too fearful to invest in the share market feel comfortable investing in property. They believe that a property investment will always have some value, unlike a shareholding which could be rendered worthless overnight.
Unlike shares, property can be insured – and quality landlord insurance can help with peace of mind by ensuring the rent comes in even if a tenant defaults or damages a home.
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