Most often, those who want to build their financial security will consider investments. At the same time, many people like myself may be nervous about getting involved in investment because they are worried about the risks. Some consider themselves to be risk-takers and are far more open to a variety of different types of investments. I am not so daring but I wanted to consider property investments. These can be a little more secure, but they still do come with some risks. This type of investment goes beyond investing a few hundred dollars, which is a possibility when investing in stocks.
When I was thinking about a property to invest in, I found there are two major considerations. Is the investment for short term gain, or is it for the long term? Or, in most cases, it can be both.
I did realize that when purchasing my first home, that this was my first investment experience. However, I was not going to realize the financial benefits from this in the short term.
Those who buy a house that they are not going to live in often do rent it. This is where short term profit can be realized. There are pros and cons to this type of investment.
Passive income: Renting a house like this is considered to generate passive income. The rent proceeds can be used to pay the mortgage and any other expenses that come with the house. Ideally, enough rent should be charged to glean an immediate profit from this property. But even if it doesn’t, then the investment is still a good one but has a long term effect.
As a rule, property increases in value as time passes. This can be a slow process in many cases but still a lucrative adventure, particularly if there are no immediate needs for the property to return an immediate profit.
Some people will buy a primary residence and then live in it for several years. When the time is right, they will sell it at a profit, allowing them to upgrade to a newer or bigger home. Some may invest in a second property, such as a vacation home, with two intentions. One is to use it for their immediate pleasure. Then secondly sell it when the property value has become substantial. This is what I felt was the best investment approach for me.
One great way to save for the retirement years is to buy a home in the younger years and then hold onto this for several years, not selling it until it’s close to retirement time. A substantial profit can be realized from the increase in appreciation of the home. By this time in life, many couples are now on their own and are ready to downsize anyway.
Another option is to invest in commercial property, and the same basic concepts can apply. Immediate gains can be realized from the rent then a profit when the asset is sold.
Those who are seriously looking at property as an investment really want to do their homework. If they invest in the rental property, they want to be sure that they are buying rentable property. It’s okay to buy a home that may need some work before renting, but the costs have to be weighed against the potential profits. If fixing it up will bring higher rent and make it easier to rent, incurring these initial costs may be worth it. It means paying attention to what is going on in the rest of the neighborhood. For example, it would not be practical to turn a home into a luxury home in a low-income residential area.
I learned that when investing in property, decisions should not be made in haste. There is always the thought that a delay may create the loss of a good deal. But, moving too quickly without doing proper research can create a financial disaster.
Keep in mind that there are a lot of responsibilities that come with being a landlord. This is not the type of investment that one makes then forgets about it. There are lots of things that must be considered before actually purchasing a piece of property.