I often have people asking me whether they should buy a house or an apartment.
Generally speaking in recent times there has been an increasing acceptance of apartments relative to houses to cater for our accommodation needs. Families are getting smaller; people have less time on their hands to maintain gardens etc. I, for one, do not like the idea of maintaining a huge backyard, that just sounds like an endless war between me and the weeds and I often lose.
You as an investor need to be mindful that tenants gravitate to properties that meet their needs. These needs will largely depend on how they prioritize and weigh up each of the above advantages and disadvantages. How they feel about the notions of space, time, enjoyment and money in relation to a specific property.
Last week, we talked about the strategy to build your property portfolio via acquiring cash flow properties and its upsides and downsides. In this week’s post, we will look at the opposite side of cash flow properties, namely growth properties.
These are properties with a higher capital growth profile of 7 – 10% (and occasionally over 12% for a short period) and a lower rental return of 3 – 5% rent (occasionally even below 2.5%).
You have probably heard that there are generally two types of residential property investment strategies:
This is where investor puts in a standard amount of effort and therefore the investment has a standard risk profile and standard return. They also typically require a normal deposit (5% – 20%) and normal finance (95% – 80%), they receive natural capital growth (3%-10%) and a natural yield (2.5% – 8%). These types of strategies include:
Cross-collateralization (also referred to as Cross Securitisation) means a loan which relies on more than one property for security – that is, there are two or more properties which are the security for one loan.
- For example, you have a home worth $700K and an investment property of $300K with outstanding debts of $200K. If you default on the loan the lender will decide which property to sell to recover its debt. It may be the lender considers your owner occupied home easier to sell and will do so if the properties are cross collateralized. Whenever possible loans should be written where properties are not cross-collateralized.