Property can play an important role in your overall investment portfolio by providing added diversification, as generally, property provides a lower level of investment risk (or volatility) than other asset classes such as shares.
Advantages of investing in property
Property is generally considered a secure long term asset class with lower volatility than shares.
Property can provide investors with potential capital growth from rising property values, regular income from rental returns and tax advantages such as negative gearing and deductions on expenses incurred in managing the property.
What are the risks of investing in property?
As with any investment, you need to consider the risks involved. For property, these may include:
- significant purchase costs, legal costs, stamp duty, property inspection fees and loan establishment fees
- costs of holding the investment such as maintenance, rates, body corporate fees and insurance
- expected rental returns may not meet your expectations
- the value of the property may decline in certain market conditions
- lower liquidity than other asset classes such as shares as it can take time to sell a property, which may be a problem if you need quick access to your money.
It’s important to remember, however, that property is considered a longer term investment with the potential for a steady income stream through rental returns and capital appreciation over the longer term.
Options for investing in property
You have a number of options available when considering investing in property.
You can invest directly in property, by purchasing real estate such as a residential property or commercial premises, or you can invest indirectly in property through a listed property trust (LPT) or unlisted trust.