Real estate has become an industry many enter to attempt to build their wealth passively. This has attracted Aussies of varying classes and professions. Investing in real estate comes in a variety of forms and here we will provide you with a brief guide into your options so that you can choose a path that’s right for you.
1. Buying a home
For most, their entry into real estate investment is buying a home. With the excitement of finding a home for yourself and your family, it may be easy to forget that this is in fact an investment. The good news is that once you have purchased your first property, it is often easier to buy a second as an investment property.
The main financial benefit regarding a home is that when it comes to time to sell the property, as it has served as your primary place of residence, what you have earned from its sale is usually exempt from capital gains tax.
2. Investing in a rental property
A rental property is generally the second step a person takes into their real estate investment journey. It can start small with such things as renting a room, a granny flat or even an apartment.
Residential rental properties are more likely to be in reach when you are starting, but with the right guidance and the finances to back your investment, you could buy a commercial property to lease. This comes at a higher risk and requires more upfront payment but could potentially be more financially rewarding.
3. Flipping houses
This is a short-term approach to investing in real estate. You first find a property that is on the older side and in relatively poor shape that comes at a lower price due to the amount of work required to fix it up. Once you have renovated the property, increasing its market value, you can sell at a profit. You’ll need to be able to tell the difference between a property with potential and one that is not worth the risk.
As attractive as this option may seem it requires a lot of know-how, skill, upfront costs, and planning. Renovations do not always go as planned, so resilience, problem-solving skills, and a good amount of extra funds in your budget are essential.
4. Investing through an A-REIT
An A-REIT is an Australian Real Estate Investment Fund. It is a way to invest in real estate without owning the property directly and bearing the responsibility of a landlord.
REITs are companies that generally own commercial properties such as shopping centres, healthcare facilities, offices and more. Of course, you can also find A-REITs that strictly invest in residential property, specialised property or even mortgages. With an A-REIT, you’ll be one of many investors.
This is a long-term investment option done through trading on the Australian Securities Exchange (ASX) and can help you diversify your portfolio.
5. Partnering up with a relative
In today’s economic climate, it is difficult for most Aussies to get their foot in the door when it comes to real estate investing. Many have gotten around this by buying a home or investment property with someone else like a spouse, partner, relative or even a friend.
When you partner up with someone else to invest in real estate, you share the risks. However, there is an added risk of potentially hurting the relationship if complications arise that you cannot overcome together. You will need to strongly consider all the necessary legal and financial obligations of owning property as well as who will reside on the property and what happens if one or both parties pass away.
Seeking guidance into your real estate investment journey
Any kind of real estate investing will carry its risks. It is important to be as informed as possible before you dive in. Consider your options as well as your finances before you come to any final decisions.
One of the most important things to do, especially when you are new to investing in property, is to seek professional guidance. This can include consulting with a financial advisor and ordering a property valuation before purchasing any form of real estate. This can help you minimise the risks as well as increase your chances of a successful real estate investment.