Whether it's the chance of getting a substantial return or the inspiring success of another investor, there are many catalysts that encourage novice investors to break through. not. Here, leading experts offer advice on three common investment strategies – and the risks to consider
Wherever it is possible to make money with money, there is also the potential to remain empty-handed. Seasoned investors already know a thing or two about how the pendulum swings in a market where long-term gains can be intercepted by short-term declines.
And the way a strategy bounces on paper – its entry benefits, final rewards, and the ability to take advantage of additional winnings – can often be very different when theory is put into practice.
According to Brendan Kelly, Director of Results Mentoring, the "practical" side of an investment strategy is often "discovering the quantity and extent of problems that need to be resolved along the way to complete the task or project ”.
He asked current real estate investors: "If you then knew what you know now, would you have taken the journey?"
But how can those who, without the extra help of hindsight, better understand what they are about to venture into and the obstacles they are likely to encounter in progress of road?
Three real estate experts share their advice on three of the most considered real estate investment strategies.
1. Purchase of off-plan apartments
"Probably the most attractive thing about [buying off the plan] is that you don't have to put a lot of money and you don't have to do a lot of work for it, because in theory, you get a lot of money coming back in one or two or three years, "says Peter Koulizos, president of the Property Investment Professionals of Australia (PIPA) and lecturer in real estate at UniSA Business.
"But the problem with thinking," I'm going to sell it for more ", is exactly what is happening in Sydney now. Real estate prices today are lower than what they were 18 months ago, so yes, in the long run, property values ??go up, but in the short run, there are fluctuations. "
Investors who buy an out-of-plan apartment at the top of the market and then attempt to sell their investment when the market plunges will likely suffer a loss.
"You are considering short-term moves. If you bought something on the plan in 2015 and tried to sell it in 2017, you probably would have made some money. But if you did bought in 2017 and you try to sell it in 2019, it is likely that you will lose money, "says Koulizos.
He also warns of the possibility of a flooded market in which investors seek to sell their units at the same time, as is often the case when the majority of units of a building are bought by investors.
"It's not like there is only one apartment for sale, there are a lot of people interested and [the investor is] will get a very good price because demand exceeds supply, "says Koulizos.
"In the situation of apartments bought on a plan, even if you have a lot of people looking [to buy] you have a lot of people who sell. It’s almost like a race to the bottom: the person who is willing to sell it for the lowest price, the first one will sell it and the second one will set the market value benchmark for all other units . "
Although the stamp duty and the deposit required to buy may lie on the underside – one of the dominant advantages of the strategy – the investor must be prepared for the unfortunate circumstance of not being able to sell the unit, which would then result in having to either settle the property themselves (with a larger loan) or lose their initial deposit.
"Property prices are today lower than they were 18 months ago … in the long term, property values ??increase, but in the short term, there are fluctuations ”
Bearing in mind that market fluctuations can be the loss of one person and the victory of another, Koulizos offers some advice to new investors wishing to buy an apartment on a plan.
"First, they should go to a qualified real estate investment advisor so that they get advice from someone who is qualified in real estate and can clearly describe the risks and returns. If it looks like [buying off a plan] is a good strategy for them, then go see a real estate lawyer, because often these contracts are in favor of the builder or developer, "he said.
In addition, the president of PIPA advises investors to determine what constitutes a "minor" variation in the sales contract.
As an example, he said, "A minor variant could be the baseboards: instead of being 15 cm high, they are only 12 cm high, and it’s is minor, but the developer could say, "Your apartment was going to be 70 square meters, but now it's 55 square meters, and we consider that minor" – when you certainly wouldn't have the same view. "
That said, the display sequence should not be taken at face value; it won't necessarily reflect what the unit will look like when it is unveiled, he adds.
In addition, given the fact that banks assess the risk, an investor may have to collect a larger deposit to buy an off-plan apartment, explains Koulizos.
“Banks understand that apartments are riskier than houses, for example. So the more risk there is, the more play the bank wants from the investor. "
2. Purchase, turnaround, sale
The "romance" of home improvement shows can be appealing to home viewers, and they often make the home improvement process "relatively easy" and "stress free," says Kelly of Results Mentoring during the strategy discussion buying, turning and selling
"There is a lot of praise and recognition … But for the novice who has never done it before, the risks are much greater than they know."
As we say, fortune favors the courageous, and it cannot be denied that there is a sense of audacity linked to the execution of a reversal strategy – especially if 'a DIY job. But to win it takes more than bravery.
"Most people don't think about money; they think about dream and romance, success and victory. They don't see the process of managing money. So the One of the pitfalls is that they run out of money along the way, "says Kelly.
"Here's a rule: you need 40% of your cash purchase price to complete the project. If you buy a property for $ 500,000, you need $ 200,000 in cash. You have to find a 20% deposit, which makes $ 100,000, and the extra $ 100,000 is all spent on detention costs, renovation costs, stamp duty and other expenses. "
Time management plays an equally important role. Kelly advises investors to double the amount of money they initially think the renovation will cost them and double the time they think they will need to complete it. If we do DIY, then the budget and the deadline should be tripled, he adds.
"In itself, blowing up your renovation budget will not actually cause failure, nor will it set you in check. What is preparing you for failure, absolutely, is not knowing the realistic selling price ownership, "says Kelly.
"Whatever the renovated property [price] you must buy an unrenovated property for at most three quarters of this price.
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“You have to understand the prices of houses on the market, in terms of non-renovated compared to renovated.”
The search for the location of the property and the target market for the property also comes into play.
"What do people want in this area?" Kelly encourages investors to think about it. "Because once you have found what you have to produce, what you have to do is find a house that you can transform into that."
3. Investing in commercial real estate
"Cash flow returns are significantly higher for commercial than residential properties," said Scott O’Neill, director of Rethink Investing.
“In addition, when you invest in a commercial building, you are less sensitive to market variations, because the value is generally based on the strength of the lease. In addition to rental income producing passive income, you will also benefit from capital growth and rent increases. "
However, O’Neill points to the potential impact of an investor focusing only on return.
"The pursuit of the highest possible return without understanding the full extent of the potential risks could leave an investor in a poorer position than he had hoped for," he said.
A long-term perspective is fundamental, says O’Neill, because some first-time business investors do not fully consider relocating a property.
"I like not to focus too much on the current tenant. I prefer to focus on the quality of the actual property for the long-term demand of tenants and businesses, ”he says.
O’Neill advises investors who plan to put their money into commercial real estate to look for long-term leases with the possibility of renewal, primarily for the security of long-term leasing. However, he says that short-term leases can at times allow an investor to take advantage of more value because a tenant has finally signed a longer lease.
[O'Neill'sotheradviceistomakesurethelocationissuitableforthetenant;ensurethatthetenantoperatesinahighdemandindustry;keepabreastoffuturedevelopmentsintheregiontoavoidanoversupplyofproperties;andunderstandhowlongitmaytaketofindanewtenant
“Residential investment can be easily achieved through online research. However, commercial investment is a different beast, "said O’Neill, adding that it was important to conduct" field research ".
"Using an expert to find commercial property is a quick way to reduce your risk," he says.
