Whether you are considering your first home purchase or you are a seasoned investor searching for his next property to acquire, real estate has always been a good investment strategy for the long-term. As the old expression goes, “They are not making any more of it”, thus ensuring a semi-fixed side to the supply part of the equation.
When considering your real estate investment strategy, the other important factors have always been “location, location, location”, but the critical factor remains how much buyers or renters are willing to pay. These amounts revolve around a complex pattern of local demand and supply.
This balance varies not just from country to country, nor even from city to city, but right down to neighborhoods and streets. Local knowledge of the forces which determine rents and investment value is critical, which is why real estate has always been the most local of all industries.
Globalization of commerce in recent years has also helped to dissolve national boundaries. Many Real Estate Investment Trusts (REIT’s) have pursued an international diversification strategy, thereby creating an upsurge in cross-border capital flows, as evidenced by technical trends displayed by forex indicators.
The Basics Of A Sound Real Estate Investment Strategy
Investing in real estate is unique in many ways, but generally, it is no different than any other investment strategy in several respects. The path to success is also rooted in preparation, knowledge, experience, and control of one’s emotions.
For the novice or the veteran, preparation is necessary from the outset. You must plan your effort, starting with an individual mission statement, a list of objectives, an assessment of your capital position, access to borrowing, and ultimately what type of property or investment option is most desirable considering your personal situation.
Once your outline is in hand and you have a picture in your mind of what you want, the next step is to begin to fill in the pieces of the puzzle. Knowledge of the market and the options it presents are now the focus of your efforts. Would you personally like to negotiate with a seller’s agent who works 24X7 in the industry? Hopefully, your answer to that question is a resounding “No”. Negotiation advantages go to those who know the industry inside out. For this one reason alone, you need a professional on your side to guide you in the selection and purchase of your eventual property. His commission will more than be offset by the savings he achieves. Put your ego aside. Emotions can cost a bundle if you are not careful to control them.
Australia is one of the few countries in the world that has skirted the current global recession. Yes, housing prices did decline a bit in 2008, but in 2010, real estate values in major cities have appreciated at double digits, near 20%, over prices from a year ago. The real estate “bubble” that burst in many other markets, for example the U.S. and the U.K., has not occurred in Australia. The Reserve Bank of Australia has concerns about speculation in the housing market, but current trends do not support the notion that a “credit-fueled speculative bubble” is forming.
Many real estate investors focus on residential properties since they are more familiar. However, it may be worthwhile to consider a commercial or industrial property investment option as part of your real estate investment strategy. A specialist is a must in this area. Value and return are the selection objectives at this stage. Quality construction in quality locations, where schools are good, always holds its value.
Location does determine value to a great extent. Focus on those areas that have had a good capital growth history. Appeal to other investors or to potential tenants is the key to capital growth. If you do decide to own rental property, then the issue of property management must be addressed. This activity can be easily outsourced to professionals in the market, who will also advise you on property insurance matters.
Consider Your Borrowing Options
Finding the right loan for your property is almost as important as finding the right property. There are many options to consider regarding source and type of interest plan, either fixed or variable. Once again, a professional will guide your review of market alternatives and help you secure what is right for you as an individual, depending on your present credit position and tax situation.
A balanced investment portfolio should always include real estate in its mix. Choosing the right investment vehicle gives you the combined potential for income and future capital gain appreciation in your ever-winding road to financial security. Specific property acquisitions are done best with the aid of a real estate professional. In any event, insurance companies and pension funds have invested in real estate to spread risk, improve long-term performance, and use tax advantages. You, too, can follow this real estate investment strategy in your quest for long-term financial prosperity.
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Hi Sean,
This sounds like a great real estate investment strategy. Investing in real estate is no different to investing in anything else. You need to know what it is you want to achieve.
And, you need to have a balance across all areas. That way, you buy yourself a little protection against any section of the market that starts to struggle.
Great point about the commercial investments…the *tennant* has to put in the fixtures, do all the upkeep and remove the fixtures at the end of the lease.
Diversifying your investment portfolio is crucial to ride the waves of economic downturn. How many people in 2008 wished that instead of putting all their eggs in one basket on the stock market had taken the time to diversify into property. As you mentioned, there was a dip, but it wasn’t that bad (in Australia) and prices recovered relatively quickly. The stock market is still trying to sort itself out with volatility at very high levels.
Having a strong real estate investment strategy will be important for those who are looking at expanding their investment portfolio into the property market and also for those who already hold real estate investement and want to retain what is currently in their portfolio, as well as looking at expansion.
A Real Estate Investment strategy is a must in today’s economic situation. No longer can you depend on just one type of investing. More and more people are researching and investing in commercial or industrial property that give a good rate of return. Spreading the “risk” in the long run makes for sound investment strategies all over.
Cath
Before you invest in real estate a proper real estate investment strategy needs to be in place. Like with other investments as well. Otherwise you can’t measure if you are still on the path that you wanted to go.
Its good advise to keep an open mind and not just go for the thing you might think you know (rental properties) but to also consider and get informed about commercial properties. There will always be business that need rooms to move into …