The world is littered with local real estate markets which offer exceptional value on a long-term basis although perhaps the short-term situation is a little more uncertain. If you dig a little deeper into the mind and thoughts of a real estate investor we can very quickly split them into two distinct individual groups.
We have those who are looking to take advantage of short-term price fluctuations to bank a short-term profit. In simple terms they are looking to make a return from asset pricing anomalies. On the other hand we have investors who keep a tight control of their finances and prefer to look at any investment on a long-term basis. While always aware of what is going on in the marketplace, long-term investors tend to discount short-term price movements if the overall position and long-term potential remains intact.
Is it really that simple?
In many ways investing in property can be dictated by cold hard facts and figures which will allow you to calculate a return for a specific investment. There is also the potential for long-term capital growth although there are many other factors to take into consideration which are often out of an investor’s control. These include elements such as the local economy, national economy, worldwide economy and taxes.
It is no coincidence that those who have built up significant property portfolios in years gone by have tended to look on a long-term basis. If you have an asset which creates a return via rental income that covers financing and running costs then effectively the property is paying for itself in the long-term. You then have the issue of an increase in asset values which is followed by an increase in rental income.
Perhaps the hardest decision for long-term investors is to know when to react to a change in the value of individual property assets compared to the income they are creating. While in a perfect world you would be selling your assets as they move higher in value it can often be just as important to know when to cut your losses with an underperforming property.
As with any individual property there is a need for strong foundations when looking to build up a property portfolio. We’ve all seen the doom and gloom stories of buy to let investors who expanded too quickly using income and property asset rises to fund new investments. Once the market stalled and prices began to fall back many saw their property portfolios collapse like a pack of cards.
There is a fine line between using your assets to fund future expansion and overextending your cash flow. There needs to be some headroom between your income and your outgoings as well as the perceived valuation of your property assets. Many of the more successful buy to let property investors will also know when to jettison properties at the right price to fund more “value for money” acquisitions.
It would be wrong to suggest that investment in real estate is “simple” although very often it is overcomplicated by individuals. Identifying assets with good long-term potential for growth in both capital and rental income terms should allow you to create a long-term income stream and grow your property portfolio. Growing too quickly has been the Achilles heel of many would be property investors in years gone by!