Getting started with Property Investment


property


Property Investment or Real Estate if you prefer, is one of the most popular forms of long-term investment. It has the potential to generate a steady passive income, which puts you smack in the 'i' of the Cashflow Quadrant. Unlike other forms of investment, it's also one of the easiest investment strategies to understand and navigate.

The rudimentary basics of Property Investment

The premise of Real Estate Investment is pretty simple: look for a good deal likely to increase in value over time. While you're busy waiting for property prices to climb (which isn't that long in a country facing a housing crisis), collect rental income. Use this income to pay the mortgage on the property, pay taxes, and perform maintenance. Should you have any positive cash flow left after all the necessary deductions, put it away. That's about the size of it.

"You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognise your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick 'no.'" - Warren Buffett

The downside of Property Investment

Property Investment, despite being relatively easy to navigate, has its pitfalls. The high entry and exit costs can be the most obvious deterrents: to invest in property you need a decent monthly salary and a good credit score – at the very least. That's if you're willing to take the risk of incurring  debt to support your investment.

Fees

Whether or not you're borrowing the money to pay for your investment, you'll have to keep in mind that buying and selling property comes with expenses such as stamp duty, legal fees, and, of course, the real estate agent's commission.

Interest rates

But the fees aren't your only problem. If you borrowed money to pay for your property, interest rates should be factored into the equation. Interest rates may rise and may result in your rental income falling short of your mortgage payments and other property-related expenses. If you are unable to adjust your rental income, the difference will have to come out of your own pocket.

Vacancy

All of the above assumes that you can find tenants to occupy your property. Empty properties do not generate rental income, but they still require maintenance and taxes have to be paid. Real Estate is also an inflexible investment: you can't sell off the guest bedroom if you need cash in a hurry.

Beating the Property Investment pitfalls

Yet Property Investment isn't a new passive income strategy. As such, the wisdom expounded by those who've made grave investment mistakes as well as those who’ve reached terrific profitable heights are plentiful.

Research potentially lucrative investments

“Investment is most intelligent when it is most businesslike.” – Benjamin Graham, The Intelligent Investor

Perhaps one of the most common Property Investment pitfalls is letting your emotions do the talking when deciding which property to buy. Any property being considered as an investment should be thoroughly researched.

The decision should be analytical.

Take your time to research the area of a property that caught your interest. Is it a growth suburb with a high potential for capital gains? What is the rental yield compared to the value of the property, and, equally important, are the vacancy rates low enough to promise short-notice occupancy? Are there any proposed developments, zoning changes, or other plans which may affect property prices?

Avoid impulsiveness and analysis paralysis

Put differently: don't be overeager, but don't wait too long either. The overeager person doesn't consider the information in front of him, and when his investment fails, he quits. The overly careful person will attend numerous seminars, read many books, and watch many Property Investment DVDs, but may make her decision too late.

Here's Warren Buffett's take on the topic:

Never Suck Your Thumb: Gather in advance any information you need to make a decision, and ask a friend or relative to make sure that you stick to a deadline. Warren Buffett prides himself on swiftly making up his mind and acting on it. He calls any unnecessary sitting and thinking “thumb sucking.”

Investing in patience rather than speculation

The lack of liquidity in property should be a clear sign that it is a long-term investment. Buying property with the aim of turning a profit in a very short time will most likely result in failure. This type of action is usually based on speculative information received from others, and is aptly called speculation. Most property tycoons advise against speculation. So don't do it.

As previously said, you don't need to be an expert to be successful. Then again, it pays to hear what the experts have to say before you make the leap. Join us here .