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Australia has always been a popular destination for investment, and in recent years, more and more investors are turning their attention to real estate. The flexibility and scope of strategies employed make this investment class an attractive proposition in comparison to other asset types. There are many reasons to invest in real estate, but here are 6 of the most compelling.
Cash flow
One of the most important considerations for any investor, and real estate has the potential to generate very strong returns in this regard is cash flow. Rental income from properties can provide a steady stream of revenue, which can be used to cover holding costs and generate a profit.
Commercial real estate, in particular, can be a very lucrative source of cash flow, with properties in high-demand locations often achieving rental rates well above residential properties. Equity and debt investment structures can also be employed to maximise cash flow potential.
Tax advantages
There are a number of tax advantages available to investors in real estate, which can help to boost your overall returns. These include negative gearing (whereby losses on the investment can be offset against other income) and the capital gains tax discount (which applies when you sell an asset that has increased in value).
When it comes to the properties in prime locations, cash flow is generated even if the property is not sold. These generate a positive return on investment and this is completely tax-free.
Tangible asset
Unlike shares or other financial products, real estate is a physical asset that you can see and touch. This can make it a more ‘real’ investment for some people, and provide peace of mind knowing that your money is invested in something substantial.
While property values may rise and fall in the short-term, over the long-term, they have historically trended upwards, meaning that your investment is likely to grow in value. However, before investing you should talk to a professional buyers agent from Sydney. Hearing a local expert could provide you with some valuable insights.
Diversification
Another key reason to invest in real estate is diversification. By spreading your investment across different properties, you can minimize your risk and maximize your chances of success.
Real estate has the potential to provide high levels of capital growth. This can be achieved through a variety of strategies, such as renovating and adding value to a property, or by holding onto a property for the long term and benefiting from appreciation.
Inflation hedge
Real estate can provide a hedge against inflation. As prices for goods and services increase over time, so too does the value of the real estate. This means that your investment is likely to maintain its purchasing power, even as inflation eats away at the value of other assets.
Changes in the economy, demographics, interest rates and government policy can all have an impact on real estate prices, so it’s important to do your research and seek professional advice before making any investment decisions.
REITs
Finally, another way to invest in real estate is through a REIT or Real Estate Investment Trust. This is a type of investment vehicle that owns and operates income-producing real estate. A real estate fund is a type of mutual fund that invests in securities offered by public real estate companies, including REITs.
REITs are listed on stock exchanges and can be bought and sold just like shares. They offer investors the chance to benefit from the potential for capital growth and income from real estate without the hassle of actually buying and managing properties.
Conclusion
There are many reasons to invest in real estate, but these are five of the most compelling. Real estate can provide strong cash flow, is a tangible asset, offers tax advantages and is a great way to diversify your investment portfolio.