Properties are sought after investments because they present the opportunity for financial freedom. However, although they are indeed significant assets and sound investments, properties take their sweet time to maximize your returns and reach their full potential, thus making them long term investments.
Here are some points for knowledge to help you understand its nature as a long term investment.
Property Investments Costs a lot
Most property investments are repaid through a mortgage. Besides paying for the property's value, other costs like settlement fees and stamp duties are also expenses that you will have to consider when listing down the total cost.
Stamp duty is regarded as a critical cost as it is a state-based tax expense. While stamp duties vary from state to state, the rule of thumb is that the higher the property's price, the higher the stamp duty is as well.
High Cost of Selling
Even after accounting for all the expenses after acquiring property, the total cost doesn't end there. When you are planning on selling your property, consider other fees like agent's fees which typically goes for 2%. Accounting for this one will help manage profit margins and give you a better idea at what stage you should sell your property.
Besides agent fees, profitable properties both on purchase and once sold are taxable. This is a substantial cost to consider and account for to paint better how much you make on the investment.
Longer ROI and Longer Growth Period
With the costs mentioned above, property investments can take some time even to hit the ROI (return of investment). This makes it a long-term investment as it is not something you buy and sell after a couple of months.
To reach their full potential, investment properties can take years to reach their peak. While growth is not guaranteed and identifying how long it takes can be unpredictable. In general, change is better seen from a long-term perspective.
Compound Interest Growth in Property
In general, the longer you hold property, the higher your returns will be given that there is continuous growth in value over time.
For instance, if you acquire a property valued at $500,000 with a steady compounded growth rate of 6%, the value after ten years will be around $900,000. That's $400,000 more after ten years but let's say you decided to keep it for another ten. After another decade, the value will be around $1,600,000. That's $700,000 more, making a total of $1,100,000 growth in 20 years.
While that sounds overwhelming, it's pretty simple considering that the interest was being earned on the gains from the growth in the first decade.
A Long-Term Outlook Will Help You Maximize Your Property
Investing in properties presents multiple income opportunities like capital growth and rental income. While it is a significant investment, it's essential to account for everything, including additional costs from purchase and selling and comparing it with the growth rate. This is why it's necessary to view properties from a long-term perspective to maximize gains.
If you're searching for a 5-star Property Manager for your investment property, our Century 21 Newcastle team can assist. Not only do we leverage technology to obtain our clients the best possible results, but we're backed by a strong marketing strategy and a dedicated team that exceed expectations. For a free copy of our Property Investors Guide or an obligation-free chat, email our Director, Casey Healy, at casey@c21newcastle.com.au or phone 02 4928 7400 today.