7 hours ago
Residential property investment is one of the safest of all forms of investments, and it has made more Australian millionaires than any other market. Property investment is not, however, foolproof, nor absolutely certain. There are risks involved in residential property investment at all levels, and this article considers some of these. Off-plan investment, home construction and home purchase all have their own risks and benefits.
Equity
Buying a property is one of the much safer investments that you can make, but as the UK and USA markets have demonstrated, there is little doubt that the markets are susceptible to economic changes. When buying a property, there are two simple rules that you need to follow to keep your investment safer.
The first is to buy in areas where there is room for growth. Buying the largest property in a developed and expensive area means that you will likely be left with just a small amount of growth. A smaller home near a much larger property, however, is far more likely to increase dramatically in value than the larger property. Where you buy your property and the size of that property will have a huge impact on the profit that can be made from it.
The second rule of property investment is to avoid negative equity. Negative equity is what caused the UK and USA markets to collapse, because the amount of money that people had borrowed was far greater than the value of their homes. Avoiding negative equity is very important, because this will prevent you from losing anything more than the property that you have borrowed against. Negative equity must be avoided at all costs in property investment.
Cost Reduction
An important element of residential property investment is to reduce the cost of your investments, wherever possible. Buying or building the largest and nicest property will greatly limit your return on the property and increase your costs too. Cost reduction can be achieved in two ways.
The first is through the construction of your own kit home. If you have land that you can build on, then building a kit home will greatly increase the value, provide you with a tenancy income, and reduce the initial investment that you have to make. Reducing your costs in this manner will greatly reduce your risk, without damaging your returns. ?Kit homes cut out the need for architects and many other building processes to greatly reduce the costs.
The second way to achieve costreduction is to consider investment property ?off the plan?. Off-plan property is property that has not yet been built. In other words, you purchase the promised building before it is complete. Purchasing ?off the plan? will greatly decrease the initial investment that you have to make and will also give you a significant increase in value, as soon as the build is complete.
There are obvious risks to buying ?off the plan?, but it is possible to limit your risk to just the value of a deposit. This option for reducing costs, however, can lead to some impressive increases in value over a short investment period.
Minimising Risk
Overall, the investment in property is a safe investment. As long as you are sure to buy or build in a good area, avoid negative equity, and limit your investment wherever possible, you will be able to reap good benefits from such investment. However, remember to diversify your investments by investing in different areas, so that if anything does happen to the market, you will never lose everything.
Source: http://www.smashingbee.com/investing-residential-property/
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