Residential property investment and Commercial property investment

Residential property investment and Commercial property investment

Property investment has seen an upsurge in the last few years. Property investment, commercial or residential, is a global venture. Such investment has guaranteed returns as the values of investment property usually appreciate with time. Purchasing property as an investment also provides good tax benefits.

Though the real estate has suffered during the recent economic slump, the confidence has come back. Property values are on the rise and the returns are getting higher, even more than stock market investments or bank deposits.

For most individuals, real estate investment would probably mean buying residential or commercial property. Buying plots of land or houses ensures the security of the investment. Not only does such investment property give solid returns, buying a house or flat also means that rent can be charged as an immediate form of return on the investment. Rental returns are additional to the amount of profit made if the house is sold once its value increases.

Despite their advantages, investment properties like flats or houses come with their own share of problems as well. Land values always increase, but houses fall into disrepair with time and this in turn causes depreciation in the value of the house. The value of residential properties is judged on the basis of location, the commercial viability of the land, the available infrastructure and the exclusivity of the neighborhood. So, you should be careful while selecting investment property.

Planning the purchase

As with most investments, it is necessary to have a concrete idea of how long the property shall be used as a rental one. The maintenance investment in a property increases with time. So, in case your plan is to hold ownership of a property for five years, you may want to put off any major renovations till the time you are absolutely sure that you can make up for the renovation costs with a high sale price.

A shorter time limit also means a higher investment risk. Even though real estate investments make more money over a long time span, shorter horizons mean that you could actually lose value if the market is overheated. Making up that risk requires a higher margin of potential annual return.

Small time investors would do well to opt for long term ownership as it allows the owner to ride out market swings and the rental income acts as a good supplement to regular jobs. Buying enough rental properties means that becoming a landowner could actually become your day job.

Commercial real estate is booming too. For every seller, there are two buyers and investors are rushing to buy these properties at spectacular rates. Companies are using sale leasebacks to sell commercial properties to investors who will lease it back to them for a stipulated period of time. This is good for issuing debt. The property values retain their high price so as to rake in the money, but the rents are very affordable.

Next to stocks and bonds, commercial real estate promises to bring in more money. The reason for this is that even if a company runs out of cash, it will pay the rent before paying a dividend or making debt payments. The real estate trade is almost equivalent to equity trading.

If making money is your aim and you do not want to take a risk with the stock market, then investment property or investing in the real estate is your best bet.

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