The recent downturns in the economy have left many types of assets and investments struggling to recover their value. A lot of people seem to have lost their faith in stocks after seeing their retirement portfolios shrink dramatically in this unstable market. This has left them feeling insecure and searching for a different way to create wealth and save for retirement.
If stocks have let you down, or if you’re simply looking to diversify your investments, you should definitely consider buying property. Historically, fluctuations in property values have not been tied to the stock market, and the return on property investments is usually higher than the return on bonds.
Buying property can seem scary, but if you know how to do it correctly, it can actually be a very safe investment. Here are some tips for safe property investing.
Evaluate your finances: Even before you begin searching for a piece of property, you need to make a financial plan. Crunch the numbers and figure out how much you want to spend on the property, keeping in mind both potential purchase prices and repair and maintenance costs. If you decide to take out a mortgage, be sure that you do not overextend yourself. The property should be an investment, not a burden.
Do your research: One of the biggest mistakes that novice property investors make is buying property without a full understanding of the market. Ideally, you will want to time your property investment so that you make your purchases during a buyer’s market, when you have an advantage over the sellers and can get a good deal. You should avoid buying property that is trendy or overpriced, as this could be a sign of an impending bubble.
Know what the market can bear: Buying property that needs renovation or repair can be an excellent way to create value and grow your investment. However, when making renovations be sure that you don’t over-renovate. You need to match the quality of your property to that of comparable properties in the same area. No matter how nice you make the property, if it is in a crummy area, it’s not going to fetch a high price. If this is the case you won’t be able to recoup dollars spent on fancy renovations.
Take the long view: While some investors like to flip properties and resell them a few months after buying to make a quick profit, this is not the safest property investment strategy. It is much better to take the long view. You should plan to hold the property for many years, allowing the value to increase over time. Even if you don’t make a huge profit this way, you will at least protect yourself against inflation.
Buy rental properties: Rental properties are a very smart investment because they provide you with an income stream as well as a chance to create long-term equity. Another bonus of rental properties is that they help protect you against downturns in the housing market. When home values fall, rents tend to remain stable or even increase as more people are forced to compete for rental housing.