When you’re investing in any asset class, there’s no such thing as a sure bet—and residential property is no different. Whilst there’s potential for capital growth, there’s a flipside of a potential stagnation or decline in market value.
You can reduce these risks by implementing a simple strategy—diversifying your property portfolio. You can do this in two ways. First, buy properties in a range of locations; that is, different suburbs within a city, and/or different States.
Buying all your investment properties in the same suburb or neighborhood means you’re intensifying your exposure to potential changes outside your control. For example, if you buy all your properties in an area where shifting ground increase the prevalence of major cracking, you could be up for tens of thousands in repair bills, more than once.
Further if you buy all the properties in a location that later loses popularity (such as a ‘boom’ town based on a single industry which later goes bust) reduced demand from buyers could affect the resale value of all your assets. If you buy all your properties in an area which later plays host to a freeway that creates considerable nearby traffic noise, you’ll bear an increased risk that not one, but all your properties will stagnate or fall in value.
By diversifying across areas within a city, you can minimize the risk of substantial cash outlays and capital stagnation or loss. If one property takes a hammering, the pain won’t be as bad when your other properties are holding their own.
The second diversification strategy involves buying across different price ranges. This will provide more flexibility when the time comes to sell and free up equity; for example, when you’re nearing retirement and want to top up your super fund.
Let’s say you have $1 million to spend. You can purchase a single asset with the whole amount, or two assets...
In his annual letter to shareholders, billionaire and Berkshire Hathaway CEO Warren Buffett talks about how two small non-stock investments in real estate from years ago were keys to teaching him about investing. Buffett says in the letter that in 1986, he purchased a $280,000 400-acre farm about 50 miles north of Omaha, Neb. From 1973 to 1981, the Midwest saw an explosion in farm prices, but then the bubble burst and prices declined up to 50 percent or more. That's when Buffett decided to buy. Read more.
Residential Real Estate 101
This article was contributed by Madoline Hatter. Madoline is a freelance writer and blog junkie from ChangeOfAddressForm.com. You can reach her at: m.hatter12 @ gmail.com.
As a real estate investor or a first-time buyer, you need to understand what type of residence may be a good investment depending on market conditions. You may want a property that will provide positive cash flow. You may want to buy and hold property that can produce income each month. Or you may want to find a property in excellent condition in which to live.
Investing in Residential real estate
The most common form of investing in real estate is buying residential properties. For the most part, it provides a place to live for the owner or the tenant. Either way, this is the safest type of investment for many average income families. The degree to which the house is treated as investment depends on the buyer's personal situation and interest. One characteristic of all these residences is that they can generate a constant income. The other characteristic common to them is that the property will require monthly mortgage payments, property taxes, utilities and repairs wherever needed.
Residential properties, in general, come in different styles, sizes and shapes.
1. A single-family house - This can be a tiny home about 500 square feet size, or a mansion with a 8000 square feet living area. Single family houses come in ranch style homes with one or more bathroom, or they can be townhouses. All these homes' architectural styles may vary, the structure may be unique, such as bungalows, slatboxes, colonials and so on. But the one common element in all these houses is that they are all designed for a single family to live on the property.
2. Duplexes and Triplexes - Much like...
Are you sure you want to be a landlord? I have clients who love to regale me with stories about their fun experiences with tenants. Like the one who took almost every fixture when he moved out: carpeting, curtain rods, towel bars, you name it — even a toilet, believe it or not. Indeed, putting up with tenants can be a real pain. But that negative consideration is offset by improving real estate markets in many areas and favorable tax rules that aren't available for other types of investments. In fact, favorable tax rules are a big reason why so many fortunes are made in real estate. The other big reason is that leveraging real-estate investments with mortgage debt can greatly multiply the upside potential. Read more.