Property or real estate is one of the many asset classes that people can own. It has a special set of characteristics that often make it attractive for people to acquire and retain in preference to other asset classes.
Whilst these characteristics can vary from country to country and indeed state to state, in Australia they include:
- A unique physically identifiable asset capable of enduring ownership with a registered title;
- There is a limited supply, resulting in sustainable value;
- Can generate income whilst being owned by allowing someone else to use;
- There is a legal process for buying and selling; providing ownership security but reducing liquidity due to costs;
- There are legal regulations regarding what can be done with a property and adjacent properties;
- Generally able to be used as security for borrowing;
- Tax-advantaged where subject to the capital gains tax regime.
These characteristics do not mean that property is a good investment. It is subject to the same market forces as all other asset classes.
Also, your use of a property may differ from a potential purchaser causing a differential in value to the respective parties.
Accordingly, strategic property holdings may yield a better return than generic investment.
The key is not to overpay on acquisition, optimise holding costs and ensure a fair price (or better) is obtained on disposal.
With proper care and due diligence, property investment is an excellent vehicle for growing lasting wealth.
Real estate is a stable, (hopefully) appreciating asset class for long term investors. This is partially due to property being less liquid than other asset classes.
Further, due to the capital required to acquire property, discipline to save funds for purchase or as a deposit is required. Where debt is used to acquire the property, further discipline is required in repaying debt.
Having debt for property acquisitions makes you accountable to the financier for the investment decision and the ongoing repayments of debt.
This discipline or forced saving (which has greater consequences if payments are not made) is a key factor in building wealth.
The above commentary is general in nature and does not consider personal circumstances. Please contact us should you wish to discuss matters raised above and their application to you. This firm accepts no responsibility or any form of liability from reliance upon or use of its contents without further consultation with us.