Baby on the way – To invest or not to invest
So you’re ready to start a family, or you have a baby on the way already, but you’re also thinking about your future financial security. First of all, congratulations! What an exciting time in your life, but it can be a daunting one also. These new plans might be making you rethink where you should be allocating your money and whether investing in property is the right move at this stage in your life. Once upon a time you may have liked the idea of investing but soon you’ll have extra expenses to consider. So is now really the right time to take on debt? Here are a few things to consider before you decide to take the plunge.
Investing in property has a wide range of benefits that you and your family can enjoy for years to come. Investing in property is for the long-term thinker – an asset that won’t reap the benefits overnight but has the potential to set you and your children up for life. Some of the many benefits of property investments include:
- Capital growth – over time your property will grow in value and when it comes time to sell, you’ll reap the benefits.
- More predictability – while we can’t forecast the property market with any level of certainty, it is more reliable than trying to predict the changes in the stock market.
- Income – while you’re paying off mortgage repayments or even long after, you have a tenant paying your rental income.
- Tax benefits – owning a property is certainly an expensive endeavour but it also comes with its perks – namely, income tax deductions.
- Build wealth – the more your equity in a home grows, the more you can leverage to invest further. It’s a money-making machine!
Every investment comes with a certain level of risk. There are certainly ways of reducing these risks, such as maintaining a steady work income, ensuring you always have a certain amount of “buffer” money and seeking the advice of experts. But these are some of the risks you must consider before investing in property:
- Initial and ongoing costs – you need money to make money. You’re going to need a hefty deposit to get things started and even a positively geared property comes with costs such as maintenance, repairs and vacancy.
- Interest rates – interest rates can be unpredictable. An increase in these rates could mean a lot more money for you to pay particularly if these prices soar at the beginning of your loan term. And you can’t simply increase your tenant’s rent just because your mortgage repayments are soaring.
- Vacancy – whether it’s a week or three months, vacancy is going to leave you out of pocket when it comes to repayments. You need to make sure you can cover these unexpected periods.
- Lack of flexibility – your repayments have to be met each month whether or not your tenant paid their rent. There’s also no quick fix if you find yourself short of cash – selling a house takes time and patience.
- Costly exit fees – real estate agent fees, advertising and capital gains tax are all part of the deal when it comes to selling. While most of the time you’ll hopefully be making money from your investment, there are a number of expenses that often catch people off guard when it comes to selling their investment property. You need to factor in these costs when you’re considering selling or else you may end up worse off.
Wealth for the future
While it’s important to understand the seriousness of these risks and weigh these up against your own capabilities, sometimes you need to think about the future as well. If you’ve got the deposit and a reliable source of income, then why not set up your wealth for the future? Nowadays, property has also become somewhat of a savings account for future generations.
Parents are now using their own property investments to help their children break into the property market. Much like leveraging equity to secure your next investment property, parents can borrow money against their equity to help their children with a deposit for a house. Alternatively, the equity in investment properties is also security to co-sign a loan with your children.
Here are several ways in which your investment can aid your children’s wealth building:
- Parents can gift a deposit – this isn’t an option for everyone but helping top up your child’s deposit savings can make a huge difference by getting them into the market sooner.
- Using your equity as a guarantor – helping your children doesn’t have to me gifting them a lump sum of money. Having them do it on their own is a great way for them to learn the value of money but sometimes getting loan approval can be challenging for a first-time home buyer. But it is important to remember that if your child is unable to make repayments, your investment is on the line as well.
- You can also sign as a joint borrower to help your child acquire their first home. This one’s a big commitment with you owning half of the property but it helps set them up and there’s the potential for you to be bought out later down the track.
Making financial investments now, with a baby on the way, might seem daunting but it makes sense. If you’ve got the money for it, then why not start investing now? If you’re unsure of what you can afford, talk to an expert.
Now more than ever, you need investor savvy people working on your financial side, who can help you navigate the ins and outs of owning an investment property and point you in the right direction.
The world of banking and finance can be a pretty daunting one for both novice and sophisticated investors and since our establishment in 2002 we’ve focused on providing outstanding service and business standards.
If you’re considering investing in property and want to learn more about the tax benefits and how it may impact you, contact Intuitive Finance to ensure you have the right information and expert support on your side from the very beginning.
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The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.