Property investment has been the most preferred strategy among the Australians aiming to develop wealth and future financial stability over a long period of time. However, the changes in the economy, increase in the interest rates, and changes in the rental yields have caused many investors to reevaluate, where their money has been working best. The debate that has been causing a lot of buzz over the last few years is whether property investors should reinvest some percentage of their rental income in the physical properties such as precious metals, collectibles or other tangible commodities.
It is a fascinating concept that is between two worlds, real estate, and the real asset market. However, first, before going this far, consider whether a redirection of your rental revenues into physical assets is a viable thing to do, and how this action will enhance (or de-enhance) the overall portfolio of an investor.
The reason why property investors are seeking beyond the bricks and mortar.
Property has always been one of the surest methods of investment in Australia due to its relative stability and the ability to increase in compound. But the game is changing. Increased margins in the hands of investors have been cut off by factors such as tightening of lending policies, maintenance expenses, land tax and rising holding costs. Most landlords are now faced with the challenge of struggling to work hard only to attain positive cashflow.
This kind of pressure on the economy makes the idea of diversification outside the field of real estate assets an attractive one. Physical assets that can be touched or stored are the options that are not directly associated with the property cycle or the housing market instability. Those are assets such as gold and silver, art and fine wine. In the modern environment, such reallocation of a part of rental income would be a stabilizing factor in an investment portfolio.
Realizing the Function of Physical Assets.
Physical assets have never been undervalued since they are tangible, scarce, and could be used as a hedge against inflation. They do not disappear in a stock market collapse like shares or other digital investments; they remain in the real world, where the paper holdings fail.
E.g. take precious metals. Gold and silver may serve as safe-haven investments when there is devaluation or uncertainty of the currency or economy. Physical bullion investment with dealers who are reputable may help to diversify the risk and save the purchasing power in the long run. An example of such a business is Brisbane bullion which offers investors different types of precious metals which can be used to add to their real estates.
Physical assets do not mean precious metals alone. There are also investors who invest in collectible cars, antiques or even agricultural resources. The most appealing aspect is that in most cases, physical assets tend to move contrary to property markets that say that when real estate is performing poorly, the rest of your tangible assets could be increasing in value.
The Argument in Favor of Reallocation in Rental Income.
When taking part of the rental money and investing it in tangible property, it does not imply that one has abandoned property. Rather, it can be treated as a redistribution – the transformation of passive income into a combination of income-generating and value-conserving assets.
The following three advantages can be offered by this approach:
First, it will decrease an excess exposure to one industry. A good number of investors in Australia already have a large proportion of their wealth invested in real estate that means they are at risk in case property prices fall. Concentrating risk of portfolio can be mitigated by shifting a small percentage of continuing rental income into bullion, e.g.
Second, a physical allocation can offer some liquidity option even when the market goes down. In property it can take months before it can sell, whereas other assets like gold or silver may be sold off in a comparatively short period of time, as and when necessary. The flexibility would enable the investors to control the cash flow more efficiently without necessitating panic sales of the property.
Finally, inflation can be hedged by tangible assets. As the cost of living increases so do the prices of tangible goods such as metals and collectables, which maintains the buying power in case of the weakened dollar.
The Issues to Consider.
All the strategies will have their disadvantages and reallocation to physical assets is not an exception. Custody of physical assets is a cost to be planned and even incur more expenses. Investors that prefer metals, such as those, have to determine whether to store them in special rooms at secure locations or at home where the same has different consequences in terms of security and insurance.
The liquidity also may differ by the type of asset. Whereas it is easy to sell precious metals, other tangible assets like art, antique or old cars might require time to be sold, and timing is therefore critical.
There is also a need to beware of chasing short run gains by investors. The physical assets are generally long term investments and so the anticipated payoff may not take a few months to be realized. The revenue that rental business is getting should not be subjected to short-term gains but to long-term objectives.
Interestingly, there is increasing demand among different property investment groups to have diversified asset portfolios among the members. They are encouraging investors to diversify real estate with other types of tangible and financial investments, which is stability and balancing of risk in a period where markets can change rapidly. This is a moderate way of thinking that admits that property is a good base but should not be the whole house.
Actionable Plans to initiate reallocation.
To individuals who wish to incorporate physical assets in their investment strategy based on property, it is moderation and consistency. This is one of the traditional methods whereby a small fixed percentage of monthly rental income is dedicated to the purchase of tangible investments. It can be accomplished through a gradual build up over time to create a significant collection or bullion reserve without pressurizing cash flow.
Education is also a very significant thing. Knowledge of the physical asset market operation, value drivers, and the origins of items in a safe manner are assured to guarantee better results. A good strategy to the investment in tangible assets is based on reputable bullion dealers, certified auction houses, and insured storage facilities.
Another factor that should be checked is taxation. Although the Australian taxation system shows favorable treatment of certain capital gains, which are long-term, other assets could be subjected to varying tax requirements. Before you restructure your income streams, you should always seek advice with a qualified accountant or investment advisor that will help you to comply and to maximize it.
Conclusion: Making a Real Future.
The property investors that reconsider their approach to allocating income tend to discover that combining property with physical goods would increase their stability, as well as their growth potential. It is not about picking one over the other but about coming up with synergy between two dominant kinds of investments.
As an investor, who attracts consistent rental income, you may want to consider how a minor redeployment towards hard currency, such as fine metals, designated collectibles, or commodities, can help to sustain long-term financial targets. Through careful planning, nurturing and discipline, your portfolio can grow to become something that is both stable and dynamic enough to meet any challenge that the market may present tomorrow.