3 reasons to invest in property if you have credit issues

08 Feb 2016

See how you can benefit from investing in property.

Credit scores are only something people think about when needing to take out a loan. Financial institutions want to ensure that they're making a somewhat safe bet when choosing to lend you money. This can be something as pedestrian as a new credit card or as hefty as a mortgage.

If you find your loan applications getting denied, it could be time to have a look at your Equifax credit report. Inside will be a full history of your credit transactions that will have on effect on your score. By understanding this, you'll have a clearer idea on how to fix it and get them approved.

If you find your loan applications getting denied, it could be time to have a look at your credit file.

However, this is easier said than done. Tightening saving habits and wiping off debt is a laborious process, and many can find themselves facing a mental wall. If you're lacking the motivation to do this, why not aim to invest in a property? Set this as a target that will push you to examine your credit history, remedy your score and get a great, tangible asset under your name.

Here are three compelling reasons why you should invest in property:

1) Rental income

If you're having issues with getting credit, it could mean that your cash flow is a little stifled. Having a rental property could be one answer to this, providing you with a secondary source of income to draw from.

A July 10 2015 CoreLogic RP Data ² shows that the median rent across the combined capital cities in Australia was $487, with Sydney recording the highest figure at just under $600.

Having this steady stream of earnings also means that you're less dependent on credit cards, and could help keep your Equifax credit report in tip top shape.

Of course, this won't be true for every situation. If your property is negatively geared, which means that costs of repayments and holding it is greater than the actual rent, you will have to fork out money from your own pocket. This will make your financial situation even tougher if you still have trouble managing it after repairing your credit file.

2) Capital gains

One of the best things about investing in Australian real estate is that it has a high potential for making significant capital gains. For property newcomers, this is the profit you make after selling a property at a higher price than what you bought it at.

A February 1 CoreLogic report³ reveals that dwellings in the combined capital cities made total gross returns of 11.4 per cent over the year to January 31. Sydney and Melbourne scooped up the most gains, boasting respective returns of 14.4 and 14.5 per cent.

Property investment is a long term strategy, and you've got to have your credit file in good shape.

However, capital gains is something that only the patient will be able to take advantage of. The organisation's quarterly Pain and Gain report for December 2015⁴ shows that real estate with an average ownership period of just over 10 years made a profit. Property investment is a long term strategy, and you've got to have your Equifax credit report in good shape and your mind on the right path to truly prosper.

3) Low volatility

You might be asking, why invest in property, rather than something like securities or stocks? While there are pros and cons to each, a benefit of investment real estate is the low level of volatility. This means that they usually grow in value in a relatively consistent manner. Changes in property prices aren't as dramatic in the short term as other investments⁴, making it far easier to plan and strategise around.

This way, you're less likely to be caught with your pants down should there be tougher economic seasons, which will help you better maintain your credit repayments, and in turn, the health of your Equifax credit report.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.

¹CoreLogic RP Data, Rental growth slump continues.

²CoreLogic RP Data, Move over Sydney, Melbourne takes over as the best performing capital city over the past twelve months.

³CoreLogic RP Data, CoreLogic Quarterly Pain & Gain Report, December release.

⁴Money Smart, Property investment.

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