Your property investment strategy must pair with your target market
Here are a few simple steps for pairing your property investment strategy to your target market. In today’s wide investment market property, investors need to identify and focus on their target market. There are so many choices available on the market that simply knowing what you want isn’t enough anymore.
To be a smart and successful investor you need to stand out from the crowd and to break things down into “bite-size chunks.”
For example, let’s say that you have identified the fact that you are a rental investor. This is great, now think about what kind of tenants you wish to cater for?
A rental property investment strategy
- Long-term rental property.
- And short-term rental property.
Long-term Rental Property investment Sector:
Believe it or not, in most developed countries the main reason why investors usually choose this type of investment isn’t because they wish to be rental investors. In 80% of the cases, they are investing in, and for future capital growth.
The low rental return covers around 70% of the loan repayments and costs. The investor will then service the loan and manage their investment property until the property has appreciated enough to either be re-financed to draw out the profits, or to be sold at the right time for the right price.
Properties suited for long-term rentals are usually larger properties suited for families with kids. The challenge with this type of investment is that they cost a lot to buy. A house in the suburbs in most western countries can cost over $400,000 USD. So more often than not this type of investment needs to be backed up by a 30-year mortgage.
The danger here is, what happens if the property stays vacant due to an unforeseen reason? In some cases, being tied up to mortgages will put investors in danger of losing their whole investment, if one defaults on their repayments one too many times. Investors who become successful in this type of investment always manage the serviceability factor before they bid on their desired piece of real estate.
Wise investors understand that they should never over commit themselves. If you have been in the real estate game for the past 20 years you have then witnessed at least 3 major crashes in the housing market. During every crisis investors who have over-committed themselves tend to lose much more, if not all.
Rental long term rental property investment strategy
- If bought at the right time and in the right location capital gain potentials can be exceptional.
- If you have good long-term tenants, it will minimize repair and damage costs. Plus, good tenants tend to pay on time which means low chance of accidentally defaulting on your loan and staining one of your most valued assets, your “credit rating!”
What are the disadvantages?
- Major repairs, and constant maintenance during the life of the investment.
- High property taxes that are based on land and improvement size.
- Bad tenants that do not pay their rent on time, or pay at all. What happens to your credit rating then?
- Higher interest rates will add to your monthly loan repayments while lower interest rates mean more buying affordability for people needing a home which means fewer potential tenants. And lower rental prices.
Now let’s discuss the other property investment option, Short-term Rental Property Sector:
This type of investment properties is very popular in holiday destinations in South East Asia and in the coastal parts of Europe. This is the main ex-pat market where foreigners purchase investment properties to rent out to either other expats or to short – mid-term foreign visitors. In this type of market, the entry prices are much lower, meaning one can enter the market at around $80,000 USD. Add to this, very flexible payment plans which take the pressure of taking any mortgages. Add this together, and you will have an affordable and low maintenance investment. It’s also cheap so, it’s easier to load off whenever the cash is in demand.
The rental returns on this type of investment are more than double when compared to the UK, Australia, USA and other developed countries. With the tourism numbers always on the rise for many years this type of investment has been very popular. Travel and Tourism is on the rise globally, making holiday destinations a great & affordable solution for all investor categories. When investing in growing tourism hubs, investors buy a slice of TWO fastest growing global sectors, the Real Estate sector and the Travel and Tourism sector.
Did you know that according to the World Travel Tourism Council’s (WTTC) Economic Impact Research, the Travel and Tourism sector has outperformed the global economy for the seventh consecutive year? While being the fastest growing broad economic sector globally, outperforming the likes of manufacturing, retail and wholesale, agriculture, forestry and fisheries, and financial services. Travel and Tourism were responsible for the creation of 7 million new jobs worldwide, while the sector as a whole grew 4.6%, much faster than the rest of the global economy.
The Advantages of a short term property investment strategy
- Low entry price tag makes this an affordable, low maintenance & low-risk investment option.
- A good steady flow of income with high ROI rental yield percentages of 6% per annum and above.
- This type of investment will keep you coming back to your paradise.
The disadvantages of a short term property investment strategy
- Due to the growing tourism industry, the local governments are now tightening their grips on short-term holiday rentals. Platforms such as Air BnB where proving to be a big competition for licensed hotels and resorts, and have the potential to hurt the Hotel and Tourism industry. To manage this risk there are now new restrictions in place for short-term rental property owners. This restricts them to rent their premises for periods of less than one month thus eliminating competition and lowering the prices.
- This factor will hurt the short-term rental property investor. Smart investors, in this case, will need to cater and appeal to the long-term property renters. It’s not an easy task but, it can & must be done!
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