Before tying up your cash flow, you should ask yourself: “What type of real estate should I invest in?” That’s because there are many different types and some are more suited for you than others.
There are many valuable investment properties on sale. Some will need a lot of work, time and effort put into it before it yields a profit.
It is dangerous to follow your gut instinct alone when investing in a property. Make sure you do the proper research; especially on the amount of investment (whether monetary or otherwise) you need before you get your desired outcome. Also, do not forget to check the comparable market value to make sure that the property is correctly priced.
It is fundamental that you are clear about what you want out of your real estate endeavours. If you invest some money in your property and subsequently increase its value, you have a choice of selling it for a profit or renting it out. Before you do that, it is important to know what the properties in the neighbourhood are going for, not what was the asking price is in the market.
Investing in residential properties
It is quite common for investors to start investing in a residential property as most of us would have experience with it when buying our own home. If you are more interested in residential real estate, ask yourself whether you are planning to invest in a landed property or a high-rise apartment/condominium?
Investing in landed properties is still popular today due to a variety of reasons. One of the strongest reasons is the attractive capital appreciation of these properties.
Landed properties include link houses, townhouses, semi-detached homes, bungalows, cluster homes and the like. Those who invested when a property was still under construction have made handsome returns upon the property’s completion. Having said that, the vital factor for good property selection i.e. location is still a very important consideration.
Some investors believe that landed residential properties make solid investments because they are usually turned into homes, making the investment less speculative.
As for investing in a residential high rise, most would agree that rental returns from these properties far exceed those of landed properties. Typically, the returns can be two to three times more in comparison.
Residential high rise includes apartments, condominiums and service apartments. A residential high rise is also a preferred choice for expatriates, largely due to the facilities within the development, safety issues and convenience.
As with any investment options, there are advantages and disadvantages. While rental returns may be attractive, one has to take into consideration the maintenance cost as this can increase over time. The management of the building could also be an issue. The better managed the property is, the better the value of your investment.
Apart from that, it is uncommon for residential properties to be rented out without furnishing, whether partially or fully. Thus, you can expect to make an initial investment in furnishings and fixtures before renting your property out.
Going commercial
There are several differences between investing in a commercial and residential property as the rules of the game are different.
If you decide to invest in commercial real estate, you would be looking at shop offices, office suites, industrial properties and so on. These investments have the potential to generate a rewarding profit.
Commercial and industrial properties have units for single use, stand alone or with a single tenant. It could also be for multi use with multi tenants such as within office buildings.
Many experienced investors would prefer commercial over residential properties. There are a number of factors for this but one of the main reasons is the ease in managing the investment.
For commercial properties, a tenant would rent the place pretty much on an “as is where is basis”. It also doesn’t matter if the property is bare as the tenant would usually renovate the place to suit his/her needs.
Another plus point for commercial properties is that the tenant will look after the premise well since it is his/her place of business and he/she needs to impress customers to ensure the success of the business.
Industrial properties
Not many venture into industrial property investment. Some of the reasons include the price (usually more expensive) and the understanding of the movement of industries.
Nonetheless, those who invest in industrial properties have received years of steady rental income as the leases are usually for a much longer period. Leases for more than 10 years are quite common, ensuring a sure return on the investment.
All said, as an investor, it is your responsibility to learn about the options that are made available to you. Discussing your choices with other investors and sharing experiences will help you make a better judgment.
Your decision to invest in residential homes or commercial properties entirely depends on your financial goals. Your goals and that of your friend may be entirely different and this will affect your decisions. Assessing the positives and negatives of each type of real estate will lead to a better decision.
Source: thestar.com.my
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