Residential property investment is a potentially excellent form of wealth creation- If you know what you’re doing. There are many possible traps, too, and you must have a very clear, realistic approach to your investment strategies and expectations. This is one of the most lucrative areas of capital investment, but it can also be one of the trickiest.
People do make big money in this area of investment, and it’s not by accident. Successful investors are those who know how to deal with all aspects of investing in property, including neurotic housing and rental markets and dubious-looking investment propositions.
Property investment basics
There are two common streams of residential property investment:
- Housing sales- The commonest form of investment, and theoretically straightforward, this is a high-capital investment, dependent on market moves.
- Housing rental- A revenue-creation approach to investment. Also the primary revenue stream for portfolios of properties.
It’s no exaggeration to say that you must be thoroughly conversant with all the issues related to either form of investment, right from the start.
Purchasing an investment property
Successful investors buy properties based on their potential for returns, either as direct sales profits, revenue potential, or both.
To assess the value of a property for purchase, you need:
- An accurate valuation of the market price and the upside potentials of the local market. This also means valuation of the downside of a property, the lower market prices in that area for that type of residence. The real value of a residential property is typically somewhat lower than the market top, and an averaging of similar properties provides a more reliable indicator of a price.
- Costing of your intentions regarding property development, upgrades, renovations, and other works. This valuation should be conducted on a real-cost basis, including legal and other fees. Important: Always consider these costs in terms of their relative value to your purchase, because you aren’t going to realize the capital value of improvements until sale or rental.
- A clear view of local market conditions- This is very much a risk management process. Assessing the market movements involves looking at price moves in recent years. A 5% return on a property isn’t a particularly good investment performance, and you could get far better returns in other markets.
A good investment property, defined
A really good investment property has some clear characteristics:
- A good local market- Meaning clearly consistent performance over time with regular demand, (check auction turnover figures) and no doubts about price downside. The ROI in these areas is usually excellent, and you don’t get stuck with an unsalable property.
- High quality premises- Forget entirely about the “handyman’s dream” properties or any rundown looking places, unless you’re an expert. Those properties can cost very big money to fix, and the choice is either deep pockets or demolition.
- Clear upside on sale price- The evaluation process shows the median price range and you can assess your capital return potentials quite accurately. A return of 8-10% is viable, under that is debatable.
- Good rental market- The right property has locked-in value as an income stream.
These are all quality controls on your investment. Get the strategy right, and you’ll get your investment moves right.
Author Bio: Tom Mallet is an Australian freelance writer and journalist. He writes extensively in Australia, Canada, Europe, and the US. He’s published more than 500 articles about various topics, including property investment and investment property.
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Real estate can be a good investment. Just like stocks, you have to buy right and sell right.
Many people gravitate to real estate or income property because they feel they understand it better than the stock market. They also feel they have more control than the stock market. Remember income property is a business and they are many pitfalls. Tenants are the largest variable. If done right, it can be very lucrative. I say this as a former landlord of apartments and shopping centers.
I bought my condo as a long term investment. I knew that the property wouldn’t be worth much at first. It wasn’t. Now the property has gone up greatly.
My only issue is that I decided to live in the unit with a buddy to enjoy the single life. Now I’m debating whether I should sell or rent the unit out.
A good local market is also a place that has in the past been considered part of the outskirts, but due to recent zoning changes in agricultural land, will in ten years time be considered close to jobs.
According to the Financial Post, Canadians who have been watching the U.S. housing collapse are rubbing their hands in anticipation of scooping up bargains. A recent survey for BMO Bank of Montreal by Leger Marketing shows that an astonishing one in five Canadians would consider buying a U.S. property… There’s no doubt the low, low prices and a Canadian dollar above parity are making buying a U.S. property very tempting. The favorable conditions may be a once-in-a-lifetime buying opportunity. And many Canadians have already seized the chance. One in five Canadians are eyeing the U.S. housing market.
Property as an investment has many benefits but it can be an expensive asset to hold. hire a java programmer