The prospect of making a quick buck in the property market is alluring, more so if what you expect to get is substantial. Almost everybody dreams of buying a house for less today and then selling it for a massive profit in a short period of time. Yet if you look closely, this happens rarely if at all.
What most people fail to understand is that the most financially successful property investors are often those that make solid, calculated, and long-term plans. They appreciate the risks that come with the quick-return flipping strategy and stay away from them for a more controlled long-term property investment strategy.
When considering which property investment strategies to adopt, it is advisable to choose one with a long-term view, especially if you’re new to this. The long-term view always succeeds. Short term gains from property investments are rare and short-lived and carry a lot of risk that’s just not worth it.
Leading property experts believe so and so do we. Here’s why:
Stellar Capital Growth
The real estate market is cyclical. In the short term, it bares the risk of catching it on a down turn which can take out most of your capital. In the long-term, however, history has shown that median house prices increase.
Over the past few years, the housing market in Australia has led an upward trend. Major cities have seen unprecedented growth mainly due to high demand for housing and limited supply and perhaps lower interest rates. Sydney’s property market has recovered 87.9 per cent in eight years since the global financial crisis, according to research by CoreLogic. Melbourne, not so far behind, while other capital cities have seen modest growth. The financial benefits for a long-term investor have been plenty.
The long-term property investment strategy is a good way of mitigating the effects of short term cycles. By seeing out the full property cycle, a long-term investor gains higher value returns over time.
Increased Rental Income
Over time, rents increase and the investor benefits from improved cash flow as well as income. Most investors are oblivious to the long-term benefits of cash flow. Maintenance costs drop in the long run and the rental yields increase, making cash flow positive.
The rental income from a property is less volatile. It’s not guaranteed that a property will always be tenanted, but whenever it is, the income is stable. Savvy investors buy into areas which are prospective over the long-term and have low vacancy rates in order to avoid having houses without tenants.
Rental income and in general positive cash flow is really important to an investor. When an investment is cash flow positive, it gives the investor the ability to gain debt and income for retirement.
Leverage your investment
Property is regarded as a secure form of collateral by banks and loan sharks. If you own it for a long time, you can borrow against it. Its equity can finance other investment opportunities. You can buy other properties and equally can take advantage of opportunities to refinance the property when interest rates are low.
The other advantage that long-term investors share in is the ability to remove themselves from short-term downturns and corrections in the market. They thus experience less stress and anxiety unlike short-term investors that tend to take greater risks. The risks involved in a long-term investment such as property are lower. An investor is able to enjoy the peace-of-mind knowing fully well that they have rental income coming in, and growth of capital with time.
Long-term investors look at the market like exactly what it is … a market, nothing more, nothing less. They can pick when to buy and when not to; when to sell and when not to. Rather than being reactive and getting swept up by its whims, they prefer to be in control.
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