Are Australian property investors ignoring the real cost of real estate?

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 at your yield?

According to the Australian Bureau of Statistics’ data, property represents 51% of house hold 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.

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 in real estate investing, all of which can dent potential returns in both the short- and long term. They include;

Buying and selling costs

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

They include property management services, maintenance and repairs, strata fees and landlord insurance (about $1200 a year for a property worth $1million).

Capital gains tax

Tax on rental income from investments, as well as on the eventual profit when you sell.

There is a potential unreliability of tenants, which can become an even bigger concern.

More dwellings mean a greater number of potential income streams but 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 can your return, thus 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. Border closures and migration restrictions 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.

Taking some of the worries out of real estate

Alternative investing options like AltX offer options in the Australian property market without exposing yourself to many of the costs and variables that can cause your yield to waver.

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 owning it.

Your regular monthly payments come in the form of interest, rather than rent, thus less worry about vacancy rates or unreliable tenants. And with an average deal time 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 investments from AltX are key to avoiding some of the traditional costs in doing so.