· Buying and selling fees, ongoing management charges, tax and tenancy uncertainty can erode any potential profits on property investment.
· Falling gross rental yield rates and rising housing prices can make it harder to find reliable returns.
· AltX provides access to the attractive property market without some of the risks and expenses that come with direct investment.
Drawn to potential gains in a surging market, Australians continue to invest in real estate. But is there a better way to get in on the boom without costs and fees chipping away at your yield?
According to the most recent Australian Bureau of Statistics data, property represents 51% of household wealth in Australia. And it doesn’t look like that percentage is going to be going down anytime soon. In June, ABS figures revealed quarterly growth in household wealth of 5.8%. And the increase was once again driven by residential property. The asset class grew by 6.7% in the period – the largest quarterly jump on record.
It’s clear Australians have retained their strong appetite for investing in property and are hungry for more opportunities. But is being a landlord all it’s cracked up to be – especially as residential prices continue to rise?
It all adds up
It’s one thing to outbid (or out-negotiate) the competition for your new investment property. It’s another to factor in all the other initial and ongoing costs associated with real estate investing, all of which can dent potential returns in both the short- and long term. They include:
· Buying and selling costs including stamp duty, conveyancing fees, agent fees and inspections, not to mention the time involved in research, due diligence, finance and settlement.
· Ongoing fees such as property management services (which can generally eat up 7-10% of weekly rent income plus GST[1]), maintenance and repairs, strata fees and landlord insurance (about $1200 a year for a property worth $1million[2]).
· Capital gains tax on rental income from positively geared investments, as well as on the eventual profit when you sell.
And there’s also the potential unreliability of tenants, which can become an even bigger concern as you grow your investment property portfolio. On the one hand, more dwellings mean a greater number of potential income streams. On the other, each carries its own risk of vacancy and no- or low-rent periods, as we saw during COVID-19 support measures.
As vacancy rates rise and fall, so, too, can your return, bringing an extra element of unpredictability.
Prices up, yield down
Several other factors are making it harder for investors to find yield in the rental market.
In September 2021, gross rental yield dropped to 3.32% – the lowest ever – with Melbourne (2.8%) and Sydney (2.5%) recording the lowest figures. COVID border closures and migration restrictions most likely played a role in this drop – highlighting one of the risks of traditional property investment.
Months of rising housing prices also make it harder to find consistent yield due to the inverse relationship between the two factors. Combining low yield with the aforementioned costs of real estate investment, and you can see why many potential investors are frustrated.
Combining low yield with the aforementioned costs of real estate investment, and you can see why many potential investors are frustrated. |
Taking some of the worries out of real estate Alternative investing options like AltX give you a chance to get involved in the upward-moving Australian property market – without exposing yourself to as many of the costs and variables that can cause your yield to yo-yo.
By investing in the private real estate debt used to fund Australian real estate projects, property is still a part of your portfolio as the underlying security – without the burden of owning it yourself. Your regular monthly payments come in the form of interest, rather than rent, which means less worry about vacancy rates or unreliable tenants. And with an average deal timeframe of 12 to 18 months and no exit costs, you’ll have more flexibility in where and how you allocate your capital.
It’s an exciting time to get involved in the soaring Australian property market. And the alternative investment options from AltX might be the key to avoiding some of the traditional costs associated with doing so.
