If you have been wanting to build up your principal, property investment is a very good way to achieve that. There are two main categories of property investment and those are direct and indirect. Indirect investing allows an investor to buy a property for a rental or as a future development and direct investment is when the investment is made through a property fund.
Direct Property Investment
The option of a rental property means that you will purchase a property, intending to offer it to a tenant to rent. The return on this investment will be two-fold — the income derived from the tenant rental and the money that you stand to earn when the value of the property increases. This rise in value means that you will be able to sell this property in the future for a profit. Another option for direct return is to purchase a home that needs improvement, making those improvements and then selling the home for a profit.
When you invest in a property fund you can earn a return on that investment through dividends or through rental income. The amount that you earn depends on how the fund performs. Your money will also earn through capital growth until you decide what is the right time to sell the property.
It can be very rewarding to invest in property, particularly if you choose to become a landlord with the rental option which can be a definite learning experience. Some people would rather have a property management company deal with their rental properties but that will lower your return on investment since you will have to pay a fee to the management company for that service every month.
When you rent out properties, it allows you to become your own boss and provides a constant source of income through the collection of monthly rents. This investment option can be part of a short-term plan which generates money quickly or as a long-term plan which allows you to receive a steady income over a longer period of time.
Property is one of the safest investments that you can make and offers some flexibility in that you can decide where you want to purchase a property and the number and types of properties you want to add into your portfolio. The potential for high returns is there because when you invest in property by purchasing it you don’t need to have the full purchase price on hand. Instead, most of that money is covered off by mortgage funds. This type of investment tends to be more labour-intensive because you must spend quite a bit of time searching for those ideal properties and then screening the tenants to ensure you find the right ones.
Another issue can arise in that your income depends on the actions of other people, such as tenants who pay rent on time and take good care of your property. Home ownership can be complex because of the massive amount of paperwork and moving parts, including your mortgage, insurance, maintenance and searching for suitable tenants. There is always a risk that that interest rates will rise and that will have an impact on your overall cost of borrowing. This could mean that the rent you receive might not cover your costs and this can be very stressful.
You may also encounter issues if you need to access your investment funds quickly because you will be faced with having to sell your property. You may also encounter issues with securing mortgage funds on a rental property because it isn’t your principal residence and there is always the risk that your lender may ask you to repay your mortgage sooner than you had expected.
There are several variables that can affect any investment, even those that are considered safe. Those variables include rising interest rates, fluctuations in the market, not being able to find tenants or having problematic tenants and having to evict them and try to collect rents. Finding reliable tenants is paramount to being able to make your property investment work for you.
If you purchase a home to renovate and flip, then you run the risk of not being able to sell the property on completion. Not being able to sell the property can eat away at your investment, for every day that you must hold the home and make payments on it, the less money you stand to recoup.
Indirect Property Investment
Indirect property investment offers you the opportunity to get into property investing without having to be so involved with the ins and outs of the property. This is best suited to those who do not want to deal with the stress and the bother of having to rent properties and choose tenants and those who do not have the time or the money to renovate a property.
Since indirect property investment can be a short-term or a long-term investment, it can be used to make fast money or to secure a steady income for future years. This style of investing depends on the fluctuation of interest rates and movement of the property market. This is a risky way to invest but it does present solid opportunities for those who can see the potential early in investment properties. Buying in when the cost of the property is low and then sitting on that investment means that the you can benefit from the value of the property increasing. This is most effective when properties are purchased when the market is low and then sold when properties rise exponentially in value. This is not a short-term investment, obviously, because property values do not rise quickly. You have to be prepared to sit on an investment for the long-term and this is not possible for many investors who want to make money quickly. If you are into property investment and would like to access quick returns, you may want to go with direct investing so that you can utilize the rental income that you will be collecting.