Voices in Finance » investment property

When Selling Is a Bad Idea- Understanding Property Market Reverses

Mike — Tue, 18 Oct 2011 13:12:46 +0000

According to recent studies Sydney property owners made a big mistake selling into a very cold market in the last year. About $800 million in net losses were incurred, pretty big money in anyone’s language. If you own or if you’re buying an investment property, it’s well worth your while to explore this issue to make decisions regarding your portfolio.

The simple fact is that property prices naturally move up and down. Sometimes they don’t do anything, particularly in a tight credit market. Booms don’t last forever. Property investors need to consider all angles in terms of their property values, and plan ahead for contingencies like slow markets or price slumps.

How losses happen

The losses in the Sydney property market need a lot more scrutiny. There are some very valuable lessons to be learned from this situation, and they’re particularly relevant to property investors.

All property owners try very hard, often for years, to avoid taking losses on their properties. Resistance to downward moves in property prices is always very strong.

Losses occur due to several common issues:

The owners can’t afford to hold the property: This is an absolutely textbook scenario, in which cashflow dries up or can’t match costs of holding property. The property owners are in a rock or hard place situation, in which selling involves taking a loss, but holding could be even more expensive, building up costs.

Income from rental dries up: If, as many property owners do, you use rental income to finance borrowing, you can find yourself in a very tight squeeze if the property is unoccupied for any significant length of time. Six months without a tenant can compromise a tight budget.

Property costs: Some “bargains” are only bargains for sellers. If you purchase a property that needs major outlays of cash for improvements or maintenance, these costs can sabotage your investment strategy very effectively. One major building defect, for example, can cost six figures quite easily.

The local property market hits a slow period: This affects your ability to make capital gains. The “ROI factor” kicks in and many people get out of property investments to free up capital to make better money elsewhere.

Unrealistic expectations of returns: Some people just don’t do their arithmetic when investing in property. The average increase in mainstream housing prices in Australia is 8% per year, which is just slightly above the median interest rate in recent years and not much more above the CPI. Overestimating returns is asking for trouble, and sellers often lose on this basis, underestimating costs and expecting too much of returns.

Dodging the bullets and avoiding losses on property investments

The best way to avoid taking losses on a property investment is to lock in an investment with a lot of upside and long term capital gain potential. A good example of this approach is one favored by professional investors, who’ll buy an upscale investment property off the plan as a watertight investment. These brand new buildings are less susceptible to broad market moves, because they’re a better class of property, and usually built in high demand areas.

In any market, quality keeps its value. Remember that when you’re looking at your investment options.

The Many Advantages of Investment Property

J. Hamilton Fraser — Wed, 23 Jun 2010 16:58:57 +0000

The number of people interested in investment property is going to see a huge surge due to the London Olympics in 2012. Not only in London, but other parts of UK too are going to see similar surge in interest in buying investment property. There are many advantages of investing in property, whether you are someone buying a house for the first time, or you are a real estate person who likes to make quick money by buying and selling property. Whatever the scenario, if you are smart enough to spot the right time and property investment it is always profitable.

The most important benefit of investment property is the stability it provides to your portfolio. The stock market can help you make quick gains but your gains might just get eroded as fast. In short there is more volatility in places where you can make money very quickly and lose fast as well. However, if you buy a house or a building and rent it to tenants you are assured a steady stream of passive income. More importantly, the land is always yours and it is highly unlikely that the value of land will ever go down.

The most important criteria for investment property is to think of it as a long term plan. Then you will increase your chances of making money. There will be the odd ups and downs in the real estate market, but if you know the right mortgage lenders to fund you and do your due diligence about a property, you can never really walk away with a loss. However, there are certain things that are very important which you need to look at before investing in a property.

Location for a start, the demand for houses from a rental perspective, any incurring maintenance charges and the overall placement of the area and the building itself are all factors that you have to carefully assess and analyze before deciding to buy investment property. Financial gain is almost a certainty if you can show patience and wait for the opportune moment to sell off your property.

According to statistics, the price of the average house doubles every 7 years. Depending on the demand for that area, new developments and socio economic conditions could cause this rate to go up or down. But if you own investment property and are not in a hurry to sell it off, you are likely to make a profit eventually.

Investment Property Specialists – How They Help Investors

J. Hamilton Fraser — Tue, 20 Apr 2010 22:45:44 +0000

Whenever you think of investing, a few things come to mind. You can start a business, collect items that gain profit overtime, put it in the bank to gain interest, or you can buy an investment property that gives you a consistent flow of money. If you’re planning on doing the last option, you may need the help of investment property specialists.

These are people who have made a career in helping investors purchase properties that are easy to lease and have high profit returns. They do most of the research on the location the clients prefer and see if there is a really good chance that the site will be productive. They are committed in providing the buyer a rich amount of information that can support their decision to purchase.

A lot of companies, offices and individuals offer these services. They provide suggestions on where you can look for commercial or residential properties that are on sale and give you a feedback on how fast you can lease it. They may even have contacts with brokers that are handling clients looking for a place to rent.

They also supply information that most brokers give to their client like materials used on the house, dimensions, affordability, maintenance costs and other important details. With this information, you can decide on the amount the property can be leased, and even the budget you can re allocate for its maintenance and annual mortgage.

Investment property specialists need make sure that investors get what they need. They will not try and sell you a property they know you’re not going to profit from. This will only break the good working relationship you have with them and damage their reputation.

Their goal is to use all their resources to find a suitable property for you to invest on. By getting help from a specialist, you can prevent mistakes in buying a property not suitable for lease.