As with any investment vehicle there are pros and there are cons to investing in properties
in Australia. It's important to know what the benefits are and what the negatives or
the risks are before you go ahead and invest. Stick with me and we are going to go through
the pros and cons of investment property. Hi I'm Ryan Mclean and I'm from positive cash
flow austarlia.com.au where we help people like yourself find and invest in positive
cash flow properties. What are the pros and the cons of investing
in property in Australia, let's have a look at the pros first, the benefits the reason
why we would want to invest in properties. Pro number one is leverage; it's very hard
to go to a bank and to say I'd like to borrow 80% of the value of the stocks that I'm going
to purchase. In most instances a bank would not lend an average investor money to purchase
stocks in the stock market, however if you go to the bank and say I'd like to purchase
an investment property in a lot of situations the bank will say we'd be happy to lend you
up to 80% of the value of that property sometimes even 90% or 95% of the value of that property.
What this means is that you can buy a larger asset and if you only were using your own
money, if you look at the returns on this let's say you have $10,000 and you invest
it in the stock market, let's say the stock market grows 10% in one year, would you now
have $11,000. Let's say that you use your $10,000 as a 10%
deposit on a $100,000 property, let's say the same return grows 10% in that year well
that property has grown from 100,000 to $110,000 and your gain is actually $10000 or a 100%
because you used leverage to invest. Pro number two is that is a hard asset which
means the fluctuation that we have aren't necessarily going to be as severe, property
markets do have their value, do have their fluctuations that do go up they do go down
but the stock market is generally seem to be more volatile than the property market,
because it's a hard asset because its less volatile that could be great news for you
as an investor. Pro number three is control and improvement,
when you own an investment property you could go and visit that property and you could do
things to make that investment perform better, you can do renovations, you can paint the
house, you can market the property better, you could mow the lawns or dig up the garden.
When you own stocks you often don't have any say or any control over how the business is
run, you just get the returns if the business starts well, by property been real been something
you can improve upon you can actually make your investment perform better for you than
investment wouldn't have control over it. Pro number four is that you can get cash flow
and capital gains, you can do this with stock as well and other investment vehicles as well
but one of the great things about property is that if you invest right you can get a
positive cash flow property that generates you positive cash flow and every single month
and you can also get capital gains on top of that, just like stocks have their dividends
and then you also get capital gains if the stock does well, property has its cash flow
and capital gains as well. Number five is that property is generally
seeing to be more stable, and as we talked about how often less fluctuations in the property
market then they are in the stock market and your money can often be seen to be more secure,
obviously it depends with the property you purchased and the area you are purchasing
always seek professional advice before going ahead and investing.
All right, we have a look on five pros what are some of the cons in investing in property,
it's not all good is it, well no its not all rainbows and lollipops, investing in property
does have its cons that come with it. Con number one is that property is not very
liquid, in order to get your money out of property you need to sell the property and
therefore that can take a significant amount of time, even if you sell the property on
the day that you lease you still need to enter into negotiations and then you have your cooling
off period and then you have your settlement period, that maybe if you do really well for
the six weeks before you get access to any of your money.
With other investments such as stocks you can say you want to sell your stocks today
and you can have your money in your bank account this afternoon, property is not as liquid,
money doesn't move as fast as it does with the stock market.
Number two is that leverage can actually work to a disadvantage, for the same example we
took out $10,000 and we invest it in a $100,000 property and it goes down 10% well we are
actually losing $10,000 of all of our investment if we were to then go and sell that property.
Leverage can be great leverage can also way you down and cause you to have more risk,
always be careful when you are investing always get professional advice where possible.
Tip number three is issues with property, when you have a stock pile of the thing you
give up is controlled of a company, you don't have to worry about the company, no one calls
you when the phone lines are down and says we need to help you fix our phone lines or
fix x in our business, the business runs itself, when something happens with your property
you are probably going to get calls about it that you'll need to fix it.
This usually isn't a massive issue because you probably have a rental managing team managing
the property for you but if you have bad tenants or you have a lot of problems maybe this can
become a strain on your time and you need to put a lot of effort in to keep the investment
going. Con number four is the barrier the entry,
you can start investing in the stock market with as little as 500 to $1000 in some cases,
but it will be very hard press to find and buy investment property using only 500 and
$1000 of your own money, generally you need a minimum of a 5% deposit and ideally a lot
of investors a 20% deposit so you don't pay lenders mortgage insurance to go ahead and
invest. If you want to invest in a $500,000 you are
going to need a deposit of $100,000 if you want to have that 20% deposit. That's money
that's not easy to come by so there's that higher barrier entry to invest which means
you might be delayed in investing sooner whereas with other investment vehicles you might be
able to get in sooner. There you have the pros and cons of property
investment I hope that gives you something to think about the risks and the rewards whether
or not you think property is for you. If you want more videos, podcasts or articles just
like this one head over to positvecashflowaustralia.com.au.