Individual Buyer vs. Investor in Real Estate
In Matt Woolsey’s article “Top Global Real Estate Hotspots“, I would like to emphasize some of his views about real estate investment.
Firstly he mentioned that:
“While an individual buying a home is interested in price, appreciation and perceived value based on the location or the surrounding neighborhood, investors look more at capitalisation rate, the interplay between how much property costs and how much it can be rented for.”
This statement will differentiate a professional investor from an ordinary property buyer. As a former Realtor, I’ve met a lot of different real estate buyers from those who have really big budgets to those who are just starting to buy their first homes.
Most first-home buyers are more particular about the aesthetic look of the homes they are buying, some take notice of the environment, but many are just happy to find something that will fit their budget.
Meanwhile, there are those who did their research before buying. These are the people that fit perfectly in Matt’s description of an individual buyer. They are looking for good buys in a good neighborhood, with a potential for capital appreciation. Although, this type of buyer can do well with the property he bought, the real movers and shakers of real estate investment are the professional investors.
I refer to them as “professional investors” not only because they know what a good investment is, but they know how to gauge which can be a top performing asset in terms of return.
Here in Australia, investors can refer to the many moms and dads who were convinced that “negative gearing” is a surefire way to get most out of one’s property investment. I wish it was. There were some who did well, but there were some who really did worse. In my personal opinion, the only sure winners in negative gearing are the tenants. More investments properties mean more choices and an increase in supply means more competitive rental rates.
However, with Sydney and other states in Australia experiencing rental rates at an all-time high, this can also indicate that many mom and dad investors realized that negative gearing is not for them. The combination of inflated prices, high interest rates, tax rate cuts made property investment a less popular choice. Many are experiencing negative equity, higher repayments they can no longer afford and the tax savings is simply not worth it.
In the end, a loss is still a loss, regardless of any tax savings. Hoping that the property will appreciate high enough to recover all those losses can be “tough love” for some. As I’ve said before the only real winners are the tenants.
I was a tenant before. My husband and I enjoyed living in a brand new half a million dollar unit, by paying only (I assume) around 1/3 of what the owner is paying for the mortgage. This does not include the strata fees, council rates, insurance and other fees for the account of the owner. The hard part is right now, that unit can only be sold for substantially less than the price they paid four years ago. Sure they were able to claim a lot of losses but in reality, in the investor’s book of performing assets…this is definitely a LOSS.
With several properties on the market in various locations, a budding investor can get lost in the sea of investment properties available. Every property owner, developer and real estate salesperson can claim that they are selling an investment property. Thus, every good investor should have the eye for detail and the logic to calculate, if the risk and returns involved can truly make it a good investment property.
Photo Source: FreeFoto.com by Ian Britton
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