Buying the right type of property in the right location will help you to achieve your goal. It is important to establish what your goal(s) is at the outset because it will determine which strategy — renovate, develop or buy and hold — you apply.

But why choose to invest in property rather than the other growth asset — shares? There are many good reasons, including:

Let’s take a look at each of these in detail.

Capital growth

Putting your money in the bank or investing in fixed interest does not give you any capital growth. If you purchase property, however, you do so expecting that the underlying value of the asset will grow. While this is generally the case, you need to ensure that you buy property in the right location to maximize your capital growth. For example, a new house on the outskirts of Melbourne’s metropolitan area bought for $400 000 may grow at 5 per cent per annum, whereas a well-located property in an up-and-coming suburb, bought at the same price, could grow at 10 per cent per annum. In 10 years’ time, the new property on the outskirts will not have even doubled in value, while the well-located property will be worth more than $1 million. If you had bought the property in the prime location, you could possibly retire in 12 years’ time, based on your increased net wealth; you could not retire on the funds from the poorer performing outer suburban property. Even though properties increase in value over time, it is crucial that you buy in the right location to maximize your returns.

Rental income

One of the benefits of owning investment property is that you start receiving an income almost straightaway. In the current market, you could settle on a property during the week and by the weekend you could have a tenant who will have paid you some rent in advance. With the other asset classes, you often have to wait until the end of your term (in the case of a term deposit) or until your dividends are due, which is usually two to four times per year.

Hedge against inflation

An inevitable part of life is inflation, and the rate of inflation varies according to the strength of the economy. One of the benefits of holding property is that property values increase at a greater rate than inflation. This is great news if you already own property, but not such great news if you are looking to buy property. The important thing to keep in mind is to buy the right property in the right location location location.

Lower volatility

Although it does have downturns, the property market is not as volatile as the share market. You can sleep well knowing that the price of your property will not plummet overnight, which can happen to shares. Keep in mind also that the security is in the land, not necessarily the building, which makes getting the location right particularly important. As mentioned in chapter 1, land appreciates, whereas buildings depreciate as they get older. The exceptions to this rule are period-style houses, which increase in value over time due to their rarity.

High demand

Everyone needs a place to live. For this reason, property, especially well-located property, will always be in demand. At the time of writing, in our country most of the rural areas are developing stages and our population is on above one billion. So the demand for property is steadily increasing, supply is unable to keep up with it. If this situation continues, prices are likely to increase sharply in the near future.

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