Investing in property is a very popular means of wealth creation, particularly owning rental property. This article assesses the positives and the negatives of investing in property, specifically owning rental property. Whether you are new to investing in property or you are just considering taking your first steps, knowing the pros and cons can help you with your decision making.
The pros of investing in rental property
Cashflow/Income – having a regular cashflow coming in from your rental property is great. The rental income helps you to pay the mortgage and in some cases, if your property is positively geared, you can even be making a profit! Having someone else contributing to your wealth creation is a great strategy.
Growth in value – This is really one of the main reasons people invest and where there is significant money to be made.
Taking an active part in determining your future – Given that your financial future is of most interest to you – it’s pretty obvious that your interest and actions will have great impact. By investing in property you are building a retirement lifestyle for you that will fulfill your dreams of travel and relaxation rather than scrimping and saving to get by.
The cons of investing in rental property
Periods of vacancy – there will be times where you property sits vacant and you’ll need to be able to cover all of the costs.
Dealing with bad tenants – You may have seen media shows which portray tenants that have ruined a rental property. Although rare it can happen. Tenants can sometimes not pay the rent, can not look after your property, can break and ruin parts of your property and can refuse to leave! It’s not always plain sailing!
Big money – property is not normally an insignificant outlay. You need to have a reasonable amount of cash or equity to get started, which holds some people out of the market whilst they try to find a deposit. Also, owning rental property means that your money is tied up in an investment which is not highly liquid, so if you need your money fast then you may find yourself having to wait.
Market fluctuations – just as capital growth in a property can be fantastic for your, market fluctuations in the opposite direction can be not so great. Although not an volatile as the share market, property can have it’s ups and downs.
Clearly there are both pros and cons to investing in rental property and whether you decide it’s right for you depends on whether the benefits involved outweigh the risks. If this is the case, then you’ll find that property is a fantastic way to increase your wealth.
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