Thursday, August 20, 2009

rental property investment

Rental property investment is emerging as an excellent option for investors as they are anxious about the sudden slumps and trifling gains of the stock market.

Are you looking for rental property investment? Before you set on your quest for a rental property, ensure that you really know what it’s like to be a landlord. Though it is a profitable venture, it is not a cinch by any means. You would have to maintain the property in order to reap the financial rewards throughout the period of your ownership.

To many, rental property investment is simply something that involves buying a house, giving it on rent, and then raking in bucks while relaxing in a couch. However, this is far from being realistic, especially, if you wish for a regular rental income for years to come. Bagging a rental property and accruing a healthy rental income for a year or two is nothing but a mundane task. However, maintaining a steady rental income until you sell the property is what counts as a great effort on your part.

Being an investor, there is nothing worse than having to keep a vacant rental property. This is because you would still need funds for the upkeep of the property, which isn’t providing you any returns as it’s vacant. Therefore, you should actively seek tenants, and do whatever is possible to keep them contented. This involves heeding to the needs of the tenants and making timely repairs. Though you might carry out some trivial repairs by yourself, other complex tasks (fixing pipe leaks and windowpanes) are best left to an expert.

In your quest for rental property investment, it is pivotal that you consider the locale. This entails taking into account the distance of the property from your residence, the availability of tenants, the average rent that you can collect, and the ability of tenants in the locality to pay you. Some locales may prove more beneficial than others. For instance, it is better to rent a house nearby a college, since an awful lot of students are likely to search for a dwelling in the vicinity of their college. This results in an ample supply of tenants all year round.

In a gist, rental property investment is all about analyzing the locale, doing whatever it takes to rent your property, keeping your tenants happy, and maintaining the property so it can be rented year after year thereby minimizing the vacancy period.

Copyright © 2006 Joel Teo. All rights reserved. (You may publish this article in its entirety with the following author's information with live links only.)

Do Properties Make the “Perfect” Investment?

Do Properties Make the “Perfect” Investment?
Posted Date: Jun 01, 2008
By: Milan Doshi

I am often asked: “Is Real Estate the ‘perfect’ investment vehicle with which to get wealthy?” Unfortunately in the investment world, there is NO SUCH THING as the “perfect” investment. Every investment product will have its plus and minus points. This article will cover the merits and demerits of properties as an investment vehicle. We will also compare properties with other investment products.

The following are the various attributes to consider when evaluating any type of investment:

1. Returns: The Expected Returns must be powerful i.e. greater than 15-20% pa. Since most properties yield an average Rental Yield of 4-7% pa (depending on property type, location, etc) + Capital Appreciation of 5-10% pa (depending on economic growth, inflow of foreign investment, etc), Properties are considered to be Moderately Powerful.

The returns are usually more than enough to keep up with and even outperform your family’s “unofficial” inflation rate of 6-10% pa. Hence, properties are an excellent long-term investment for keeping up and even out-performing inflation.

2. Stability in Both the Market Value and the Annual Returns. Properties are considered to be extremely stable and hence safe. They are less risky investments as the Volatility or Price Fluctuations are extremely low. On the other hand, it’s fairly common to see prices of even blue-chip property stocks fluctuate by +/- 20% in any given year


3. Liquidity: How Fast Can You Convert to Cash either by Selling or Refinancing? Unfortunately, properties fare very badly in this regard. Properties take time to sell and convert to cash. The earliest, if you are lucky, is approximately one month to sell and another three months to get paid. Leasehold properties in undesirable locations may easily take six months to sell and another nine to 18 months for the transaction to be completed.

However, if your property is fully paid-up or if you have built up sufficient equity by reducing your outstanding loan, you will have the option of revaluing and refinancing the property. It will take approximately two to three weeks to refinance a property with the same bank. If you are refinancing with another bank, it will take a few months for the paperwork to be completed.

4. Leverage: Does the investment Offer you the Opportunity to Borrow Money + does it give you the Flexibility to Choose your Borrowing Level? In properties, you can choose to borrow anywhere from Zero to as high as 100% of the purchase price whereas for Futures or Options contracts, the gearing levels are fixed as the contracts are standardized.

No other investment has this unique benefit. In some instances, it’s even possible to borrow 100% of the purchase price if you are familiar with creative financing techniques. The advantage of borrowing money for property investments is that your loan is gradually being reduced thanks in part to your hard-working tenants, and your asset is appreciating over time thanks to inflation.

5. Expenses or Costs at the point of

A) Entry or Purchase

and

B) Exit Point or Sale of the investment.

Properties are costly investments, both at the entry and exit points. During purchase, there are legal fees, stamp duties, mortgage insurance to cover the loan amount and several other costs involved. During exit, there may be property agent’s fees payable, legal fees to redeem your outstanding loan and other costs.

6. Capital Gains Taxes on the Disposal of the Investment. On 1 April 2007, the Real Property Gains Tax (RPGT) was abolished, hence properties are now on par with other investments with regards to this point.

7. Annual Operating Costs such as Income Taxes, Other Expenses (e.g. Quit Rent, Assessments, etc), Interest Costs, Repairs, Management Fees, etc in upkeeping the investment. Properties fare badly in this regard.

8. Time taken for Transaction to be Completed, at the point of purchase and sale. On average, it takes anywhere from three months at the earliest to even 12 months in some instances for the property transaction to be completed and for money to exchange hands. For portfolio investments, it usually takes only three working days for a contract to be concluded.

9. Stress or Headaches involved in maintaining and upkeeping your investments. With properties, you must be mentally prepared to deal with numerous problems with regards to property and tenant management issues.


10. Maintenance of Proper Records for Bookkeeping purposes if there are tax issues involved. Due to the various fees and charges involved, and their tax implications, it’s absolutely essential to maintain proper bookkeeping records. The more properties you have, the more time, effort and money you will have to spend to ensure your records are kept properly.

11. One-Time Effort Needed. Properties score a perfect 10 here. You only have to work once to acquire the property. Thereafter the property will continue working for you forever, as long as you keep it. On the other hand, portfolio investments require regular monitoring as they are susceptible to any changes in the economic environment.


12. Impact of Mistakes. Mistakes are bound to be made by everyone, especially new investors. The impact of buying the wrong property type, in the wrong location, taking the “wrong” type of loans or having a nightmare tenant is thousands of dollars and a few years of your life to undo the damage done.

Hence it’s extremely important to get it right the first time and every time in all aspects of property investments. Mistakes are extremely costly both in money and time costs.

13. Market Efficiency: Are prices of the investment freely disseminated and known to everyone? Unlike mutual funds or stock prices, property prices are not freely available. To compound the problem, valuation of properties is extremely subjective. The value of a property in the eyes of the seller, property negotiator, valuer, banker and buyer is different. This presents numerous challenges to novice investors as well as opportunities for savvy property investors who possess the knowledge of property values.


14. Investment Horizon: Is there any minimum period the investment ought to be kept? Properties should ideally be kept for a minimum of three to five years as the entry and exit costs are extremely high and the returns are only moderately powerful. Property investments are usually not recommended for those who want to get rich fast or for those who need their funds back in less than three years. However, on some occasions it’s possible to make money by using “flipping” strategies by buying below market and disposing above market.

15. People Skills: Property investment is a people-intensive business and you must be able to build rapport and get along well with real estate agents, sellers, tenants, lawyers, bankers, contractors, etc. You also need to possess good negotiation skills as almost everything is negotiable. If you do not have these skills, you may not find real estate your investment “cup of tea”.

I hope you now have a better idea of the pros and cons of real estate investments as compared to other investments. My suggestion is to have a diversified investment portfolio that contains both properties and other investments as opposed to concentrating everything on properties alone.

If you have any comments on this article or questions, please email to me at achievers88@yahoo.com. I would highly recommend that you sign up at our moderated getrichbook egroups at:

http://finance.groups.yahoo.com/group/getrichbook/

It's free for all my book readers and readers of this article. Only relevant emails pertaining to finance, property and stock investments will be approved for broadcast.

Article Contributed by:

Milan Doshi
Financial Trainer and Best Selling Author of
“How You Can Become a Multi-Millionaire Real Estate Investor!”
For more information, visit www.milandoshi.com

Copyright 2008 by Milan Doshi

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