Investing in real estate

Investing in property is simply another form of investment. You can invest:

directly by buying property yourself or
indirectly by investing in a managed fund, includes timeshares.

Although real estate agents may understand the property market, you should still seek some independent advice, because property investment might not be for you.

Licensing of real estate agents

We do not licence real estate agents who give advice only about property investments; they are licensed by state and territory agencies.

We do licence real estate agents who give you advice about financial products, for example insurance products or negatively geared investment packages. These agents must hold a licence from us or be an employee or authorised representative of a licence holder. You can check ASIC's databases to see if a real estate agent is licensed or is an authorised representative of a licensed adviser. If you think the real estate agent might be providing financial product advice to you and you cannot find their name on our registers, please contact our Infoline at infoline@asic.gov.au or on 1300 300 630.

Before you buy real estate as an investment asset

Most of our advice about investing also applies to investing in property. Here's some general advice.

1. Be wary of pressure selling techniques and high pressure seminars
Some sales people can be extremely persuasive and persistent. They often use gimmicks like offering you a "once in a lifetime opportunity". Read our warnings about investing in real estate through investment seminars

2. What are your overall financial plans?
Before investing in any asset make sure your decision fits into your overall investment strategy. If you don't have an overall investment strategy then now is the time to develop one:

Think about what you want to achieve financially and how soon do you want to achieve it.
Set yourself goals.

3. Understand the risks involved
Make sure you are comfortable with the risks associated with a particular investment. All investments carry risks. Generally the higher the risk the higher the returns.

Do you know what the risks are in real estate? Can you sleep at night knowing this? If you can't then perhaps you should invest in an asset with less risk.
All good financial plans will split your money up against a range of assets in order to spread the risk. Think about this as you think about investing in real estate. Will you have all your eggs in one basket if you buy a particular piece of real estate?
Remember that all types of investments have cycles of profitability and cycles of losses. These cycles can last for years. Will real estate cycles fit your financial plans?

4. Getting advice
Decide whether you need professional advice. If you're dealing with a financial adviser then make sure they're licensed by ASIC. Choosing a financial adviser

5. Investing directly or indirectly
You can invest directly or indirectly in many assets, including real estate, through a managed fund. Timeshares are a type of managed investment scheme. More about managed funds

6. Do your homework
Find out as much as possible about any investment you are making. Make sure you really understand the pros and cons of the choosing a particular investment asset. Weigh the advantages and disadvantages against your financial goals.

Tax and social security issues

There may be tax issues to consider that your real estate agent may not understand. Your tax accountant could be a good place to start to check the numbers and tax issues. Centrelink's Financial Information Service conducts seminars about real estate investing, and you can also make an appointment to discuss your personal situation even if you are not receiving any Centrelink benefits. FIDO's tips on tax and social security issues

Borrowing money to invest

Borrowing money and negative gearing

Borrowing money to reduce your tax

'Low-doc' loans - are they for you?

Looking after your investment assets

Love your paperwork. Read and keep all documents you receive about your investment.

If your asset is being managed by someone else, then make sure they keep you informed of what is happening:

Insist that they give you written records and reports. Chase them up if they don't arrive.
Ask questions if you're not sure. Reputable investment managers will be happy to answer your questions and will expect you to take an interest in your investments.
Make sure you give all your instructions to a manager in writing. Also tell them what limits they have to act on your behalf.

ASIC and the property sector

In a speech to managers of listed property trusts, ASIC Commissioner Berna Collier discussed issues facing property trusts and property investments generally

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FIDO Website: Printed 07/31/2010