What is property investing? In lesson 1 of the Introduction To Property Investing we look at the definition of property investing and why people chose property over other investment options
What is property investing? On the surface, this is a really simple question and we’re definitely going to go into the definitions of this sort of stuff. But, we’re currently going to look at why people invest in property as well over other investments like stocks or maybe creating your own business or something like that.
First, with the definition, which I got from ye old Wikipedia. Property investing, which is generally also known as real estate investing, involves the purchase, ownership, management and rental and/or sale of real estate for profit. It’s a purchasing of real estate, whether that be houses, units, blocks of units, commercial property, offices, all of this sort of stuff. And you’re purchasing it in order to make a profit and that profit can be made in different ways; which we’re going to talk about in the next lesson, about how to make money investing in property.
But really, you’re generally holding on to that property for a period of time and you’re either making through leasing that property out or renting that property out and generating an on-going income and you’re making a profit that way. Or, you’re making a profit through increasing the value of that property. That increase may happen as a result of the market going up like Sydney and Melbourne did in 2016 where they just jumped 15%, 18% or something like that. People, their properties have gone up $100,000 in 6 months.
It could be like that. Or, it could be actually changing property and maybe developing. So, turning a block of land into a block of units or adding a granny flat on the back of something. You can actually make changes in order to increase the value of your property and make it a profit. That’s kind of what property investing is.
Some of the reasons that people invest in property over other asset classes is that one of the things with property is that you can borrow a lot of money to invest in property. You can borrow money to invest in shares, it’s not as common and it can be slightly more difficult, but it’s very common for people to borrow 80%, 90%, 95% of the value of a property in order to purchase it. So, where a property might be $500,000, which a normal person couldn’t afford by themselves, they could save a 10% deposit, maybe $50,000 and then go ahead and purchase a property. They can purchase investments that are worth way more than they could actually afford to buy otherwise because of the ability to borrow money.
They also tend to have limited liquidity, so stocks, in most circumstances, you can sell quite quickly, within the day. Real estate, generally, has a slower turn around time. Depending on your area, it can be as little as a few weeks in a really hot area where the buyer wants to move really quickly. But in other areas, it can take up to a year to sell your property.
So, it’s less liquid, it’s harder to change hands. You’ve got to go through a real estate agent, the whole buying process; you’ve got to get solicitors involved and things like that. But that limited liquidity has its benefits, as property is generally seen as a more stable investment.
I’m not saying that it’s less risky because there’s obviously, risk involved. But because of that limited liquidity, it doesn’t fluctuate just like the stock market does. Or, maybe it does fluctuate, but we just don’t see it because properties aren’t changing hands that quickly.
Most property investments are made on the assumption and reliance that the market will go up in value and that’s how most people have made money in Australia through property investing. They’ve purchased properties and they’ve gone up in value, but that’s just one way to make money. And if you’re just relying on the market, it’s kind of like gambling because you don’t really know the market forces that are affecting it.
So, as a part of these courses, I want to educate you, as an investor, to be able to pick the right suburbs as well as to be able to pick the right properties that you don’t just have to rely on the market, but you can try and predict the market and have some accuracy there as well as have opportunities to increase the profit of your property through other means as well.
So, that’s it for “What is Property Investing?” In the next lesson, we’re going to look at, “How Do People Make Money in Property?”
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