Property investment has risen in popularity over the years, with most Aussies either looking to venture into the market or already owning property.
Although most people delve into property investment with a sense of purpose, very few follow through on their investment goals.
Types Of Investment Properties
If you’re keen on investing in property and wonder which type of property to invest in, read on to discover the different investment properties and which one is suitable for you.
1. Residential Properties
This is the most popular type of property investment. It encompasses apartments, condos, houses, and other properties with residential land titles.
Even though residential properties may be commercially titled, they’re usually considered residentially titled. Properties that fall under this category include small office home office developments, one of the most common investment types. It has a lower entry price point than commercial property investment choices.
That said, not all types of investments give the same returns. This is typically due to various factors, mainly the property’s location.
Therefore, before investing in a particular residential property, it’s essential to do your due diligence to ensure it’s in a strategic area. If you invest in residential properties such as condos or apartments, you’ll have to pay all the bills, including sewerage, assessment, maintenance, and sinking fees.
Choosing among the different residential properties can be challenging as each type has drawbacks and perks. Additionally, investing in residential properties can cost a lot. Luckily, platforms like Joust can connect you with lenders to cater to your financial needs. They also have resources to help you develop the best investment strategy to give you high returns.
If you’re dipping your toes in the real estate industry, starting with residential property investment is better since it provides rental stability and the best market growth.
2. Commercial Properties
If you wish to go beyond the residential option, you can invest in commercial properties. They are usually regarded as the best investment option for seasoned investors since they have higher dividends and rental returns. However, they do pose a higher risk than residential properties.
The properties that fit in this category include small office lease office, small office smart office, small office versatile office, etc.
Retail and shop lots also fall into this category. Commercial properties are for business purposes only, and owners typically lease them out to small businesses and companies. With commercial properties, leasing is usually multi-year, meaning that cash flow is more significant and more stable when the rental rates go down.
When venturing into commercial properties, consider the higher upfront capital outlays since the financing margin is usually between 70-80%.
Investment in commercial properties needs more substantial holding power as commercial units depend on the building’s occupancy rate, the population, and the building maintenance quality.
The main advantage of commercial properties is the tenant bears the cost of expenses like management fees and utilities. The tenant is also responsible for maintenance and property damage costs.
Additionally, owners usually rent out most commercial units while unfurnished, saving the owner a lot of money.
It’s important to note that with commercial properties, an owner can’t reduce the rent asking price as you would with residential properties since commercial buildings are usually valued based on the calculation of their rent yield.
3. Vacant Land
Most investors interested in creating instant equity usually turn to purchase vacant land on rezoned areas or UGB’s (Urban Growth Boundary) fringe. Vacant land refers to agricultural or undeveloped land. Examples of vacant land include timberlands, ranches, and farms.
Many investors consider vacant land a worthwhile investment since it is a tangible and finite resource. In addition, these properties save investors the hassle of worrying over damaged or stolen goods and undertaking renovations. Vacant land is a significantly cheaper type of property investment because it doesn’t need property insurance.
However, purchasing vacant land needs a lot of knowledge and skill. To ensure you succeed in buying land, you’ll need more than a simple portfolio. The biggest disadvantage is that vacant land can’t generate income unless it’s a farm. Therefore supporting loan repayments using vacant land can be challenging.
Most investors purchase vacant land as their one big score, hoping to develop it. However, most people fail to understand that there’s a risk involved with each step. Development is different from property investment — the room for error when conducting feasibility and due diligence on a site is marginal.
Land development and subdivision are a big part of creating a solid portfolio. Keep in mind that development isn’t a passive income investment approach; its primary purpose is to generate income.
Understanding the different types of properties is essential to making an informed investment choice. There are many pitfalls for the uninformed investor. Do thorough research before investing to save yourself a ton of unnecessary heartache.