For many people thinking of investing in property for the first time, it can be hard to work out exactly how the property you choose will make you money. While people have a general idea that property goes up in value over time, and that property is a 'safe' asset, what does this actually mean for the return on investment you'll receive? The reality is, the performance of individual properties can vary dramatically, and a poorly-performing property can rob you of hundreds of thousands of dollars in lost income.
So to be a successful investor, you need to understand what you're trying to achieve, and make you sure you find a high-performing property to help you achieve it. Here's some ways how:
Understand Why You're Investing
The term 'investing' refers simply to using money with the expectation of achieving a profit, or generating a return on the funds outlaid. Investing, however, can mean different things to different individuals. For example, a couple starting out with a young family may have a different view on return to a person approaching retirement. The person approaching retirement may need regular and stable income on the money invested, whilst the younger couple may need growth of their capital over the long term. Both are investing in property for return in different ways.
Where Is Your Return Coming From?
In terms of property investing, overall return is achieved through a combination of capital growth and income (rental return). The best results are achieved when a property can provide adequate income during the acquisition phase, and suitable growth to improve the net worth of the investor as they approach retirement. In many camps, investors are advised to seek out either good rental yields or superior capital growth, inferring that they are mutually exclusive. In practice, an investment property can provide both cash flow and growth as much as it can provide neither. A great property will have strong demand from both buyers and renters, producing both capital growth and rental income, while a poor property won't achieve much of either.
Knowledgeable investors pursue a portfolio which delivers enough cash flow to avoid financial stress while they acquiring assets, and which grows over time in value to improve the asset base and provide a solid nest egg on which to retire.
Not All Properties Are Born Equal
The last challenge to building a quality portfolio is to acquire the right kind of properties. By understanding the property market itself, and performing the right kind of due diligence, a property investor can vastly increase the potential of their overall return and reduce the associated risk. At Aquila Property Investment, we help our clients to increase their return and reduce risk by:
- Seeking the best locations to invest in based on your timeframe and budget,
- Researching the most in demand property type for that area, and
- Purchasing property at the best possible price.
There are many pitfalls for the eager, inexperienced and unwary within an industry where simple mistakes are very costly. By following a disciplined approach, your chances of increased returns are greatly enhanced, and risks can be managed which ultimately builds your wealth.