Residential Real Estate Investment
Residential real estate investment has grown exponentially in Australia over the past decade, with approximately 13% of Australian's receiving rental income. The increased focus on residential investment can be attributed to a number of factors, including the desire of investors to share in significant capital gains, volatility of share markets in 2001, 2009 and the collapse of major trading companies such as ABC Learning, Centro in Australia and investment giant Lehman Brothers in America. Despite these trends, aversion to residential investment still remains rampant. Real estate investment is an exciting and exhilarating process! And with the promise of financial independence and security it is worth considering. Don’t be fazed if you don’t have a background in financial matters: everyone has to start somewhere. Further, the learning process is in itself intrinsically satisfying.
Click Here to Find A Residential Real Estate Agent You Can Trust Renovations are risky, requiring a considerable time investment and rarely add much value to the residence. National trends show that the value of a property will always increase in the long term: patience produces its own rewards. According to N E Renton, author of Understanding Investment Property, aversion to residential investment can be attributed to a number of factors, including ignorance of alternatives, contradictory and misguided advice, and an understandable fear of putting hard earned assets at risk. Increased deregulation and competition have led to new managed fund products being evolved, providing new opportunities but often over complicating the investment process for those with no formal training in investment matters. Individuals with no formal training can take advantage of the opportunities that real estate investment offers by familiarising themselves with alternatives, such as the stock market and commercial/industrial estate. Residential investment vs. Stock Market investment The Economist: ‘in rough times residential investment offers investors a safe haven.’ Generally speaking residential investment, unlike stock market investment, is recession proof: people always have to live somewhere. In fact, economic downturns offer residential investment opportunities, as decreased demand and increased supply push down the price of estates. Property investment is also historically very stable, with house prices having, on average, doubled every seven years. By contrast, stock markets are historically volatile, and are subject to, on average, dramatic downturns every decade. Residential investment and stock market investment do not need to be examined exclusively as it is not uncommon, particularly in Australian, for investors to have a portfolio made up of estate investment and stock market investment. That said real estate markets are not immune from downturn, the subprime mortgage crisis, for example, is an ongoing real estate and financial crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. Australia has however remained largely immune from the sub-prime mortgage crisis, reflected by the fact that Australia remains the only OECD country to avoid technical recession. The Australian real estate market remains less volatile than other OECD real estate market due to prudent regulation and more stringent loan criteria. Some critics argue that such standards limit growth potential. On the flip side, they also ensure that real estate remains a safe and stable site for investors. Residential investment vs. commercial or industrial investment Financial Review: Smart Investor: 'after a sluggish 18 months, the Reserve Bank has foreshadowed the return of boom times in residential property.' There are many inherent advantages in residential investment. For example you need a smaller deposit. Moreover, depending on your track record and income, level you can even borrow 100% of the purchase price. By contrast commercial mortgages require a deposit of at least 30%. Although residential leases are shorter than commercial ones, residential properties are easier, generally speaking to let, meaning you will have less time when the property is vacant and you aren't receiving income. By contrast, it can take months to find a new commercial tenant. Residential property also suffers from some disadvantages which, on the most part do not apply equally to commercial or industrial property. For example all of the following are likely to be greater in the case of residential premises. Evicting a bad tenant, for example, can be time consuming and frustrating and can attract bad publicity. Landlord and tenant legislation tends to be weighted heavily in favour of tenants. That said there is also some special legislation governing commercial and industrial property. Commercial tenants will also tend to maintain the property better as the look and condition of the property is important to their business and their staff. |
Thursday, 09 February 2012
