Property investment is ranked fourth in the list of most common investments, preceded by cash, bonds and shares. There are plenty of reasons to invest in a property – maximise tax returns, to get loans against and to add an extra source of income to the household.
For budding businesses, property investment can supplement them with the income to grow the business further. While most business owners will put their profits back into the business, it is wise to keep some funds aside for property investments.
Property investment can be done in many forms – buy-to-rent, investment trusts, REITs etc., and each has its plus or minuses. The return on investment also depends on what type of property you are putting your money into, like residential, commercial, retail, or industrial. Education is the key; hence in today’s article we will look at different types of property investments, the pros and cons for each, best practices to follow and a few market trends to get you started.
Let’s start with global market trends. We won’t get into the nitty gritty details as that would be a whole other article by itself. Here are some key highlights from across the globe – Trump’s administration has not only affected the growth of America, but has also caused economic activity to suffer across the globe. Increase in the interest rates has slowed down property buying in the US; the rental market however will see bright days ahead. When it comes to Europe, Brexit may cause the Eastern and Central European property market to surge. Lisbon is the hotspot to invest in, in 2019. In Hong Kong co-living is on the rise. Foreign investments become easier in Cape Town, where as local investment becomes difficult. Property market in Australia takes a hit, where as in New Zealand, the market is in good shape and is predicted to grow further.
Now moving on to popular property investment types and how they fare against each other.
Property investments are divided into two categories – direct and indirect.
Direct investment is when you buy the property directly, either to give it on rent or to sell it in the future for a profit. Indirect investments in when you invest in property fund. In this case you don’t own the property,you hand over your funds to fund manager or a investment company who in turn invests them into a property or in property funds.
Investment of any kind comes with a risk, the only difference is the scale of that risk. Fixed investments, saving accounts, cash investments are generally considered low risks, whereas property investments and share are considered high risk due. Property investments, whether direct or indirect, will yield you returns in the long term as the market fluctuates intermittently. It is always advised to diversify your investments, or more simply put, do not put all your eggs in one basket.
Buying property directly, whether to rent or sell, comes with its set of risks, and some of them are as follows:
– Buying any property requires a substantial sum, even if it’s something small like a shipping container home. And unlike other assets, it takes a long time to sell a property and make a profit.
– You are investing a high amount in a single asset, so it is a big commitment, and bigger the commitment, the bigger the risk.
– You need to go through agents, fees, stamp duty, taxes, conveyance fees etc. in order to transact when buying or selling the property, these are a few things most don’t take into account and are later blindsided by.
– Maintenance of a property is a time consuming and a costly affair.
– Loans and mortgages are commonly used to buy a property, and these come with even more risks. There is no guarantee one will possess enough money to recover the loan, or if the cost of mortgage goes up and if one fails to pay the instalments, the banks or the mortgage provider can take the property away.
There are several options when it comes to buying a property indirectly – property trusts, investment trusts, REITs, Insurance property funds, offshore companies or shares in listed real estate companies are some of them.
Indirect property investments requires low capital investment and hence is assessable to individuals who want to invest in a property but do not have sufficient income to buy one or do not want the commitment that comes with buying a property. This gives them an opportunity to dabble with the market, with a significantly smaller sum. The fund is managed by professionals with years of experience behind them and who can read the markets better than a layman. Professionals often diversify their investment so as to lower the risk of any major loses.
While professionals know what they are doing, it does come with the downside of not having as much control on your investment as it would if you were investing it personally. Hence, trust and reputations are important when investing with a professional. Their experience and market know-how and ability to predict market fluctuations is what will eventually determine the returns you get on your investment, so choose wisely. Here are some of the largest property management companies in New Zealand to help your search.
Last but not the least, investing in a property means investing long-term, and for this asset to hold its shape long term, regular maintenance is required. This means getting the house pest-controlled ever so often, getting renovations done, making additions to increase its resale value, and in case of buy-to-let, getting rental appraisals done in order to get the maximum benefit out of the investments. You’ll also need to keep a list of emergency local authorities (local city corporations, police, fire-department, local housing co-corporations, flood cleanup companies, natural disaster corporation etc) and hiring a caretaker for your properties overseas or those that falls in other states or region than the one in which you reside.
Investing in a property is not easy, and certainly not cheap, so in order to make an informed decision, look for professional advice wherever possible. Take the time to do your research, and do not make hasty investments, and most importantly be patient through the process!