Investing in Property
Parmdeep Vadesha
June 13, 2008
Property investment has become an increasingly attractive alternative for people. Investing money in property for income and capital growth purposes provides stable and predictable upshots. But like other investment alternatives, investing in property has risks connected to it.
The following are crucial aspects that have an influence on property investing:
Location: An establishments location is a central factor when determining its market value. A property investment is likely to be held for a number of years. During this span of time, the pull of a given location may change. For example, when a certain area of a city is undergoing restoration, the assessment of the location will most likely improve. However, the appeal of existing residential properties may be affected if they are situated near a shopping center development.
Physical Values: The neighborhood or general surrounding of a building can affect its value. Some neighborhoods have more appeal than others. There are others that are avoided because they are situated in areas with major traffic or flooding. When it comes to a building´s value, the two most important factors are its type and utility, which refers to the benefits tenants get from occupying the building. Improvements made on the building are another major factor.
Size and Type: Size matters. In general, the bigger the property the more expensive it is. This is because of the big size of the land occupied, which is generally seen as an advantage. Adding an extension to the property can add value .
Age: The age of a property can influence its value. Properties with historical aspects may make them valuable. But for some older properties, they may need more maintenance and repairs than a modern property.
Tenant Credit Risk: In property investing, the value of a building is a function of the rental income that an investor can expect to receive from owning it. If the tenant goes on default, the owner is at a risk of losing rental income. It is not just the risk of outright default that counts. If a tenant´s credit quality were to go down during the ownership period, the sale value of a building would also decline.
Liquidity: Property investments is not as liquid when compared to the trading of bonds and equities. In normal market conditions, property takes time before it reaches final transactions. It takes longer when the market is down. Moreover, there can be a high cost of error involved.
Supply and Demand: In the rental market, when there are too many houses available for lease and not enough demand, this will lead to a cut in property rental prices. On the contrary, when the demand for rental property is high and there is not enough rental property on the market, this will result to an increase in property rental values.
With a good number of people staying in rented accommodations for longer periods now than before due to difficulty in getting on the property ladder, property will remain a safe investment. If landlords can hold on to their properties and resist the urge to sell quickly, there will be no downturn in property values and they can expect tenants to remain in their properties longer.
The following are crucial aspects that have an influence on property investing:
Location: An establishments location is a central factor when determining its market value. A property investment is likely to be held for a number of years. During this span of time, the pull of a given location may change. For example, when a certain area of a city is undergoing restoration, the assessment of the location will most likely improve. However, the appeal of existing residential properties may be affected if they are situated near a shopping center development.
Physical Values: The neighborhood or general surrounding of a building can affect its value. Some neighborhoods have more appeal than others. There are others that are avoided because they are situated in areas with major traffic or flooding. When it comes to a building´s value, the two most important factors are its type and utility, which refers to the benefits tenants get from occupying the building. Improvements made on the building are another major factor.
Size and Type: Size matters. In general, the bigger the property the more expensive it is. This is because of the big size of the land occupied, which is generally seen as an advantage. Adding an extension to the property can add value .
Age: The age of a property can influence its value. Properties with historical aspects may make them valuable. But for some older properties, they may need more maintenance and repairs than a modern property.
Tenant Credit Risk: In property investing, the value of a building is a function of the rental income that an investor can expect to receive from owning it. If the tenant goes on default, the owner is at a risk of losing rental income. It is not just the risk of outright default that counts. If a tenant´s credit quality were to go down during the ownership period, the sale value of a building would also decline.
Liquidity: Property investments is not as liquid when compared to the trading of bonds and equities. In normal market conditions, property takes time before it reaches final transactions. It takes longer when the market is down. Moreover, there can be a high cost of error involved.
Supply and Demand: In the rental market, when there are too many houses available for lease and not enough demand, this will lead to a cut in property rental prices. On the contrary, when the demand for rental property is high and there is not enough rental property on the market, this will result to an increase in property rental values.
With a good number of people staying in rented accommodations for longer periods now than before due to difficulty in getting on the property ladder, property will remain a safe investment. If landlords can hold on to their properties and resist the urge to sell quickly, there will be no downturn in property values and they can expect tenants to remain in their properties longer.
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