You’ve probably heard about how much money you can make via property investing more than a few times. In fact, there is a common assumption that investing in Australian property will double your money every 10 years. While you can make some money by investing in property, it’s not always a 100 per cent certainty. You could even lose money if you don’t know what you are doing.
To actually make money off of investing in property, your rent will have to cover your financing costs. You can use a tax break from negative gearing in order for that to happen, but financing costs are not your only concern. When doing the math, it’s implied that you will make roughly 7 per cent return every year. This also has to cover the finder’s fee, the commissions owed to the real estate agent, the stamp duty, the legal fees and the depreciation of any white goods. Not to mention the cost of maintenance.
Additional costs will also include managing agent fees, renovations, repairs and rates. Not to mention the possibility of having to fight tenants in court, deal with body corporates and more. Then there’s the inflation to worry about. While the government claims inflation is 3 per cent a year, it’s usually much closer to 4 per cent.
Keeping all of this in mind, you might be wondering why property investing is seen as such a sure thing. Well, it’s a much more reliable and less volatile of an asset. You should also remember that if the rent covers your borrowing costs, then you’re not getting a 7 per cent return on the value of the property. Instead, you’re getting it on the value of your deposit. Basically, if you bought a $100,000 property on an 80 per cent lending ratio and make $7,000 in rent, then you’re actually making $7,000 on your $20,000 deposit, which is a much bigger return.
There are a lot of things to consider before deciding that property investing is for you. Be sure to contact us at Your Corner for further financial advice.