Property Investment - Know The Facts- By: Whitney Cox
Purchasing a property with the intention of renting it to tenants or businesses can be a relatively safe, passive and profitable source of income. There are two ways to achieve a return with rental property investment, one is with the income you receive from rent payments after various costs have been subtracted and the other is with the sale of the property - assuming it’s value has increased since the original purchase.
Property investment isn’t always as simple and straight forward as the first impression suggests, as with any investment there will always be a chance of exiting with a loss. Fortunately reducing the risk of encountering a sour situation like this can be achieved by deciding if a rental property is really suitable for you, followed by completing the necessary research before jumping head first into the investment.
You can’t go wrong with property, right?
As mentioned above, although the ‘safer’ option property investment still carries a risk, in fact there is no investment scheme that is 100% guaranteed to offer a positive outcome. Property investment is often compared to stock investment and it is of the utmost importance to realise that the two are different. What they do share in common is that if handled correctly both investments may provide a positive result especially on a long-term basis, the flip-side is that lack of research and experience in the management of either investment can end in detrimental losses for the investor. The difference between the two is that share or stock losses are made publicly known as the statistics are available daily and often during the television news. On the other hand property losses are very rarely discussed; the reality is they do occur - we just don’t hear about them. Never take advice from somebody who believes property is a zero risk investment.
Choosing your investment pathway
The point of this article is not to put you off investment, instead it is to prepare newbies for all situations ensuring the business deal is entered with a level-head and satisfactory knowledge to reduce any risks involved with taking on a property.
This is no get rich quick scheme, as a new investor it is absolutely necessary to put the time and energy into learning and understanding the role of investor and landlord should you choose to operate directly. Indirect investing requires less effort but obviously a reduced level of return.
Direct property investment means you are in charge of managing your own investment, it will become part of your weekly workload. There will be administration, maintenance and any other property related issues to deal with. Should the investor also choose to manage the tenanting of the property, he or she will need to learn and understand the role and obligations of a landlord too. Alternatively, a property manager can be can be employed to deal with the tasks involved for a fee. A reputable property manager will select suitable tenants, manage the rent, bond and maintenance on your behalf.
Indirect investment is made with the help of an investment management company. This option means the running of your investment will be held by an experienced team of investors hereby reducing the risk of failure and providing you with sound advice should you need it. Generally used for larger or shared investments this option can be beneficial for new investors lacking confidence, but does come at a price.
Deciding on a property
No matter which option an investor chooses they need to take extreme care whilst deciding on the purchase of a suitable property. All personal preference and emotions need to be left at the door as the property will be owned solely with the purpose of creating a positive return.
One handy tip is to attempt to buy during a low in the market, chance are the property will sell for less than it’s worth immediately giving you an advantage for resale. The following checklist will provide a guideline for other important considerations whilst in the buying process:
- Decide on a target demographic of tenant
- Match the location to the chosen demographic
- Check safety and security of the neighborhood
- Take note of any selling points including distance to schools and amenities
- Always undertake a professional building inspection
- Avoid unusual house layouts
- Check for land stability and flooding etc
- Work out average rental rates for similar homes in the area
- Complete a financial forecast before signing any papers
As you can see property investment involves a reasonable amount of work and time to get off the ground, the good news is that once competent in the field, investing soon becomes much easier and quicker. Set a solid foundation of knowledge with your first investment and find yourself well on the way to becoming a happy, successful investor.
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Whitney is a blogger for a property investment company in New Zealand. She is always keeping up to date with real estate news and looking for great investment properties.