Property is one of the most popular investments out there, however for new and first time investors, it can be quite confusing. See below for 10 things you should be aware of before deciding to make an investment.
1. Property investment is not as complicated as it may seem
Unlike other markets where there can be complicated jargon and terminologies you need to understand, real estate is relatively easy to get your head around. Most people already know what a house or a villa is and only a small amount of research should be necessary.
Investment strategies are also fairly simple. Capital growth, cash flow, yields and returns are all terms you need to get a grasp of, but the web is overflowing with information on these topics and it should not take long to learn what you need to know.
Obviously, there are also less basic strategies that will require a bit more in-depth knowledge of the field, but starting out, you want to be sticking to the basics.
2. Types of property
As you probably know, property is a wide category that covers many different types of real estate. These categories include, residential property (houses and accommodation), industrial (factories, warehouses, fuel plants), commercial (office blocks, parking lots, retail centers) and even plots of land. When deciding upon an investment you should always research all these categories extensively in order to determine the pros and cons of an investment.
3. Investment returns
The return on an investment property can be calculated in multiple ways.For example, annual rental income can be divided by the initial purchase price to determine a gross rental return. However, using the purchase price as a variable is not always entirely accurate as it is often likely that the value of the property will increase. Therefore it is suggested that gross rental return should be based on annual rental income divided by current market value of the investment property.
“Gross rental returns generally vary from around 3% to 5%, slightly less than the average of 6% in the early 2000’s” said Larry from Innovo investment property, but with property prices rising so quickly, this was to be expected.
4. Resistance to recession
Something that first time investors often worry about is how they will make a profit during a recession. However you will be glad to hear that property with strong cash flow is almost recession-proof. This type of property can sail through uncertain times mainly because for many, it is a necessity. Housing will always be needed, and people are always willing to forgo other luxuries to ensure they have a roof over their heads and somewhere to sleep. Rents and mortgages are nearly always seen as a top priority during hard times.
5. Money Making
A recent study by Fortune Magazine has found that 97% of all wealth was either created or held in property. If that doesn’t sound like a reason to invest, I don’t know what does. Being able to start out with small investments and build up to larger ones as the money starts rolling in is one of the biggest benefits of property investment. Over a number of years you can build up the cash to invest in more luxurious property, an area where the profit margins are higher, and the risk lower. Who knows, once you become comfortable with the ways of investing, you may even be able to start up your own investment company!