If we were to compare Property Investment to share portfolios, a couple of major benefits in Property Investment are-:
- The ability to contribute actively to your investment
- The ability to use leverage
Like an active share trader, being an active property investor means you have the ability to contribute to the bottom line. Perhaps you have a trade or have learned skills.
What is unique to property is you can physically, add value to that asset – it can even be a hobby that adds wealth over time.
It’s like a job really you are trading your time for money.
Leverage Historic Low Interest Rates
So if you buy a $400,000 unit with a $40000 (10% deposit) down, that is leveraged. The power of leveraging is if the unit goes up by 5% your investment goes up by $20,000. Now that doesn’t seem like a lot 5% but really, it went up by 33% in terms of your money you put down. $40,000 of your own money has now turned into $60,000. That is the power of leverage leveraging and it cuts both ways if that dropped.
What if the price drops
So you need to be prepared if the price drops. Clearly long-term real-estate values rarely drop. However you do need to have time on your side.
Say compared to share trading where you need to make many informed decisions to beat the market, in property you need to make one good initial decision.
Generally the property market moves relatively slowly. It may take 6 months to sell a property.
Learning from experience
You may discover a niche that works for you in the Property market. Be it subdivisions, renovations, house and land packages etc. Maybe you live in a property for 12 months and reduce your capital gains exposure.
Perhaps by investing your time in your property your external income keeps you at a reduced tax burden.
From repetition may come a relatively safe investment strategy, that over say a 30 year period brings solid gains.
You are developing skills.