Investing in residential property has many benefits, including capital growth. Property has been a popular route to wealth for many people for many years. Buying their own home is often the first investment many people make; purchasing another property may well be the second even before shares and other assets.
But your first investment in property needn’t be your home. Buying an apartment to rent out can be a good way to accumulate funds so you can buy your own place. Increasing numbers of young Australians are choosing this route, buying in one area while renting in a more expensive area or living at home for a while longer.
Still others are diversifying into non-residential property via property trusts and syndicates. Sensible investments in property have many attractions. Property can be less volatile than shares though not always and it tends to be regarded as a safe haven when other assets are declining in value.
It has the potential to generate capital growth (an increase in the value of your asset) as well as rental income. Then there’s the tax advantages associated with negative gearing (more about that later). Investors need to have a keen awareness of the interest rate environment how higher rates might affect their expected net return and the market for their property should they wish to sell. They also need to make sure the return or yield from their property stands up against the return they might have achieved had they invested in shares, for example.
Returns come from capital growth and from rental income and be far greater than any other return in relation to risk/return.
Capital growth is the increase in the value of your property over time and is one of the main reasons people invest in residential real estate. Historically, Portugal residential property has experienced strong capital growth the long-term average annual growth rate for property is about 9 per cent but periods of stagnation and even decline are also part of the picture. The nature of the property cycle means real estate should probably be thought of as an investment with a 10-year horizon.
Your best chance of achieving capital growth is buying the right property, in the right place, and most importantly at the right price. Research current house prices. Keep an eye on sale and auction results in the papers, or buy reports on specific suburbs from researchers like Australian Property Monitors Home Price Guide. Talk to us about recent sales prices in your desired area.
You should apply the same standards to a property investment as to any other investment, benchmarking the potential return against what you might achieve elsewhere. An important measure is a property’s yield. That can be calculated by dividing the annual rent it generates by the price you paid for the property and multiplying that by 100 to get a percentage figure.
So you can benefit from both rental and capital gains, with a very reduced risk factor, which is what makes investing in real estate so appealing. It is almost always a win win situation and that is what we stride for always when dealing with our clients.