Steady growth over volatile trading in property

The world of property investment offers many different opportunities and levels of risk although in reality there are only two real choices, steady long-term growth or potentially volatile short-term trading. While the vast majority of investors will introduce a mix of these two strategies into their property portfolios what are the pros and cons of these particular strategies?

Tracking property markets

If you believe that there is potential for long-term capital growth, and indeed increased rental income, in local, national or international property markets then perhaps a long-term strategy would suit you best. In effect you would look to build a balanced property portfolio which would give you exposure to different markets, property types and hopefully create a long-term uptrend in the value of your investments and rental income.

This type of approach would not require any speculative investments and in the longer term, assuming your predictions come true, you would be more than happy just to follow the long-term trend. You may not see fireworks with returns, you may not see a massive increase in your rental income but over the longer term you will have gradual growth and an investment portfolio backbone to build on.

Short-term property trading

While any investment in property should be seen on a long-term basis there are many individuals who do make significant returns by short-term trading. This type of strategy depends upon a gut feeling, research and perhaps high-quality contacts within the industry. This is by far the riskier type of strategy and while it would be wrong to say it is not the way to do things, those looking at short-term property trading must go into this with their eyes wide open. Where possible you should also look at limiting your downside and maximising your upside by whatever means.

Short-term trading can also be very susceptible, on the upside and downside, to quick changes in sentiment. This can turn a paper profit into a paper loss overnight and if you are looking to trade then your funds could be tied up, unless you take a loss and live to invest another day. The worst-case scenario for any short-term trader is to see their funds tied up which can lead to some very difficult decisions about what to do.

Backbone and speculative investment

The reality is that the vast majority of property investors will incorporate both short-term speculative trading and long-term capital/rental income growth. The percentage of investments tied up in short-term trading and long-term investment will obviously vary from person to person. It is very important to give yourself at least a degree of stability with long-term investment assets which will not necessarily set the world alight but are unlikely to collapse in value. If you are able to add a degree of “premium returns” via short-term trading of property assets this would certainly be a bonus.

However, while it is always good to spread the risk the endgame must always be an increase in the value of your property assets and rising rental income. How you go about this challenge will certainly vary from investor to investor.

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