Are you thinking about investing in property sooner or later? Although most people buy a house intending to live in it, many buy property and real estate as a form of investment. The appreciating value of the property as well as the monthly rental income are the key motivators for investors to do so. Although this all looks promising and interesting, there are a few things you must know before considering a big-ticket purchase like this. Let’s go through frequently asked questions and learn more together.

Advantages of Investing In a Property

A common reason for many people to invest in property is the stable returns it brings through appreciated value as well as monthly rental income. Overall, investing in property is considered a safe(r) alternative when comparing it to other investment options such as the stock market. Ideal for investors that think long term while minimising risk.

A few first important points to keep in mind when buying into property are the location as well as the developer you buy from. Working with a reputable developer will probably result in less headache over the years and it will also reduce the risk of them defaulting on any contracts you have. Additionally, location is key! Buying property in a prime area of the city, your monthly earnings as well as your appreciation in value can be significantly higher than buying property in suburbs or rural areas. Urban cities or towns with tertiary education institutions are especially in demand, although the selling price of properties will also be more expensive there. Make sure you do some research on this before deciding.

Although the appreciation of the property is an important factor, it is often difficult to quantify. What can be quantified though, is the monthly rental you are receiving from any tenants occupying your place. Especially when you took a mortgage to buy the property, rental income can be of great help paying back your monthly instalments. In case you did not take on a home loan, it is for sure some great side income.

Properties can also be a reliable investment option if you are looking to protect yourself from inflation. This is because the property price appreciation has historically been higher than the inflation rate. For instance, properties in Cambodia have reportedly seen an increase of in property value of 10% to 15% per annum last year, whereas the country’s inflation rate for early 2019 is pegged at 2.15%.

Disadvantages of Investing in Property

Although all of the above looks promising, property investments may present some disadvantages as well. The key challenge you will face is the lack of liquidity. Simply put, it is a slow process selling off any property to gain your profit, unlike other investments such as stocks. The process of selling your property will take a longer period time for two main reasons: firstly, finding the right buyer often doesn’t come easy. Secondly, once you find the right buyer, the tedious administrative process around loan approval and registration can take up quite some time. It is not uncommon for this whole journey to last up to 6 months. Something to not forget!

On a second note, properties and real estate require management and maintenance. You will need to pay for insurance, building management fees if applicable, maintenance costs for wiring, piping and more as well as renovation costs and real estate taxes. These can add up quickly and must be planned well in advance. Do not forget about the above when you consider investing.

A last note to consider is the high entry cost for property investments. If you are looking to buy, you must have enough money at hand for both the down payment to the bank as well as any transaction fees such as legal fees, and real estate agent fees that will occur. These fees can easily add up to an extra 5-10% of the overall price. It is therefore not a type of investment everyone can start off with immediately.

Knowing what you know now, the real estate industry clearly offers good investment opportunities especially when you’re on the lookout for longer term, lower risk returns. The potential disadvantages can be accommodated for if you plan carefully. Don’t forget that investing in property comes with commitments and obligations. Make sure you have enough time at hand to accommodate for them.