Market/Finance News Blog: What are your property investment options?

By the resi financial blog team, 27 January 2015

Market/Finance News Blog: What are your property investment options?

When it comes to analysing market trends and investment opportunities, it's always imperative to know what your options are before getting stuck in. When it comes to purchasing property for speculative purposes, there are a few different possibilities, each with their own benefits and drawbacks. Here is a succinct guide to your property investment options.

Bare land and OTP

Land banking is a long-term strategy that involves purchasing land in areas that have yet to be developed in the hopes of generating massive profits. Typically this is rural land that many years, or even decades, down the road gets rezoned for commercial or residential use as neighbouring centres expand.

This kind of gamble can pay off in a big way as land becomes more scarce, but it can also generate very little profit if you do not pick the right area.

A way to do this on a smaller scale, with lower risks and lower returns, is to wait for development to start and buy up the first few blocks of land available. Towards the end of the development's lifecycle, builders and home buyers will usually pay premium prices for land in these already bustling suburbs.

Another way to do this is to buy a house off the plan (OTP) in the early stages, then sell a complete house later on when offerings are scarce. This will probably net a higher return than the previous method, but you will have to bear the cost of holding a more expensive asset for a while.

You may also need to rent it out during that time to cover the cost - although display homes present a good opportunity here too.

The gold standard - standalone houses

For investors who play the long-game, purchasing freestanding, existing houses has long been the investment of choice. While these assets usually build up a lot of intangible value that can cost you at the offset, these negatively geared properties typically accrue greater capital gains in the long run.

The risk here is obviously exposing yourself with a negatively geared portfolio - are you able to cover your expenses in all scenarios? There is also the risk of buying on the wrong side of town. If you buy into an area that turns out to not be as popular as you imagined it would be in the future, your capital increases may suffer for it.

You may consider buying these less desirable properties in a conscious effort to create a positively geared, cash flow portfolio.

Units and strata property

When it comes to cash flow, another alternative is looking at apartments and strata title property. While there are some increased expenses, such as owners corporation fees and maintenance slush funds, there are also some benefits.

These kinds of dwellings typically cost less to maintain, as the outdoor areas and even the exterior walls of your unit are often communal areas, covered by the funds mentioned above.

Apartments also tend to be concentrated in high demand areas, such as near universities, central business districts or other business hubs. This can mean relatively high rents - helping you achieve a positive cash flow quicker than standalone houses in the suburbs.

Businesses, commercial and rural real estate

There are also specialised areas of investment that fall under the real estate umbrella. Purchasing a business, commercial or rural property can come with a lot of responsibilities not readily associated with real estate investment.

The performance of these types of real estate is not only linked to their location and the market as a whole, but also to the ability of the asset to generate its own income. These kinds of investments are best left to those with an extensive financial backing and business acumen. The solid support of advisors, commercial agents, accountants and lawyers will also be necessary.

If you have decided that one of the above categories of property investment is for you, and all you need is to find out more about what kind of investment home loan to use, then don't delay - talk to a resi loan specialist now.

Categories: Home Loans, Property Investment