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Some more interesting reading.
Pros and cons Written by Travis Morien
Advantages of property:
Pros and cons Written by Travis Morien
Advantages of property:
- A good asset to hold in inflationary times, capital growth and rent increases tend to be linked with inflation and hence property is a true inflation hedge (over the longer term).
- Banks are more comfortable with property, and will lend more money at lower rates than they do with share investors. No margin calls, good interest rates, high loan to value ratios make this a good asset to gear into.
- Reasonable long term returns.
- The sector is more tax efficient than bonds and cash, though less so than shares.
- There is enormous profit potential in fixing up slightly run-down old properties in desirable locations, though development is not the same as passive investment.
- Property trusts that invest in commercial property eliminate most of the disadvantages mentioned below, and often give better returns, while having most of the advantages mentioned above!!
- As long as you have tenants you'll never be bored or lonely!
- Gearing is a double edged sword, and the ease of credit only encourages people to take unacceptable risks.
- (Direct) property is an extremely expensive and high maintenance investment. At least when you own shares the company won't suddenly force you to fork out more money all the time. Don't underestimate the risk of costs blowing out, it happens very often in this investment.
- Tenants are an expensive pain. Just talk to a plumber and ask if he would be happy to invest in a rental property. He's used to having tenants call and casually rattle off a list of expensive jobs they want done, with the understanding that they will pass the bill on to the landlord as a fait accompli when the job is finished. Most plumbers I have met have sworn solemnly never to invest in a rental property!
- The supposed low risk of property is an artifact of infrequent quotes. Prices are set in a somewhat inefficient market and are driven by the same sorts of market forces that make the stock market so volatile. Don't believe this stuff about residential real estate always going up, that is a lie.
- It is hard to get good data to do research. Often it doesn't exist at all, often when data does exist you can't get it or must pay a lot of money for it. At the same time measures of performance like median house price indexes are seriously flawed and do not give a true picture of returns.
- It is hard to get good advice, ASIC does not regulate the real estate industry and so it is full of dodgy Arthur Daley types that fled the financial planning and insurance industry when that started becoming regulated in the 90s. Most books and almost all seminars on the subject are worthless.
- Never confuse "I've lived in buildings all my life and therefore understand the general concept of a rental property, at the seminar they told me houses go up a lot and that you can save tax!" with "I understand the business purchasing and managing a real estate property and tenants, am familiar with my rights an obligations as a landlord, can understand the market forces that drive prices, know a thing or two about mortgage finance, I know how the tax system works, I understand the strengths of weaknesses of property compared to alternative assets and am prepared for the constant paper work and occasional hard labour involved in property management."