Pros and cons of property investment

Property investment is often seen as being less risky than other forms of investment, but it does have some potential pitfalls.

Benefits

• Less volatility - Property can be less volatile than shares or other investments.
• Stable income - You earn rental income if the property is tenanted.
• Capital growth - If your property increases in value, you will benefit from a capital gain when you sell.
• Tax deductions - Most property expenses can be offset against rental income, for tax purposes, including interest on any loan used to buy the property..
• Physical asset -You are investing in something you can see and touch..
• No specialised knowledge required - Unlike some complex investments, you don't need any particular specialised knowledge to invest in property..

Pitfalls

• Cost - Rental income may not cover your mortgage payments or other expenses, so you may have to find other money to cover the costs.
• Interest rates - A rise in interest rates will mean higher repayments and lower disposable income.
• Vacancy - There may be times when you have to cover the costs yourself if you don't have a tenant.
• Inflexible - You can't sell off a bedroom if you need to access some cash in a hurry.
• Loss of value - If the value of the property goes down you could end up owing more than the property is worth, this is known as negative equity.
• High entry and exit costs - Expenses such as stamp duty, legal fees and real estate agent's fees make buying and selling property very expensive.

-- Source: MoneySmart