Any property investor has at one time or another asked themselves the question, what is the best type of investment property in the real estate market? There is no single answer that works best for this question. As a real estate investor you need to thoroughly assess each property type and it’s associated pros and cons. Furthermore you need to understand your particular needs and preferences. Thus you will be in a position to make an informed decision.
Best type of investment property in the real estate market
The best type of investment property in the real estate market is relatively based on the specific situation of the real estate investor. There are too many variables and considerations to have a one size fits all solution. Keep in mind that the best type of investment property for you will meet your investment goals and plans. Considerations include;
- Your current financial situation,
- Short-term and long-term investment goals,
- Knowledge of the real estate market.
Additionally, every investor’s circumstances surrounding their investment is different. For example, some investors are financially capable of purchasing real estate in cash. While others have to finance their investment through mortgages and other home loans. Moreover, some investors look to making profits at the soonest opportunity. Yet others are content with long-term profits and property appreciation.
We have compiled a list of each investment property type, as well as it’s advantages and disadvantages. In addition we have noted what makes each property type optimal for the different types of real estate investments.
a. Rental properties
One of the most misunderstood perceptions in the real estate market is that a rental property will immediately yield a passive rental income. However, this is not necessarily the case. The greatest thing to comprehend is that a rental property might be the best type of investment property, but only in the long run.
In the majority of cases the bulk of rental income generated from your rental property will be committed elsewhere. This will include your mortgage payments, property tax, maintenance costs, and possibly professional property management. However, in the long-term you’ll manage to settle your mortgage repayments. This constitutes your largest segment of your rental property expenses. To this end you will start to realise meaningful returns and significant profits.
In addition, regardless of the time it takes to payoff your mortgage, financing will come from your tenants through rental income. Furthermore, your property’s value will continuously appreciate. Therefore presenting you with the opportunity to sell it for a profit without any further costs.
b. Plot of land
A plot, lot or stand is an ideal type of investment property and has a certain appeal to a lot of real estate investors. The popularity of vacant land is primarily due to the low procurement price and inexpensive running costs of owning vacant land.
Other than the initial amount of buying the land, the only expense of owning land would be in property tax. This tax, however, is very low and manageable. Additionally, you can make some sort of profit from the land by either using it for commercial acrivities, such as farming, or even renting it out.
On the other hand, one of the major drawbacks and stumbling blocks is the difficulty in a lender. It is often quite difficult to access financing for this type of property investment. Nevertheless, there are a few institutions such as Zambian Home Loans, that are willing to finance such ventures. For the most part the vacant land market is mostly a cash only market. Therefore, you will need to save up a large amount of money in order to make your investment.
Finally, you need to have profound insight of the market and the area in order to make this investment profitable. Have an accurate projection of the area’s development and ensure the land’s value will appreciate with time.
c. Fix-and-flips
The final type of investment property is the fix-and-flip. Fix-and-flip properties are among the best short-term investments in the real estate market. Therefore, this is considered as the best type of investment property by a large number of real estate investors. In a nutshell, a fix-and-flip property includes the action of buying a property in a bad state, fixing it, and selling it at a higher price. However, fix-and-flip ventures are capital intensive and usually have very high costs associated with them. In addition they require extensive planning in order to pull them off successfully and profitably.
In as much as fix-and-flip properties can be purchased at low prices due to the dilapidated or sub-optimal state, there are several other costs. For example, the cost of repairs as well as property inspections, all of which are pivotal to the success of your real estate investment. Finally this type of investment property is quite volatile. Costs and expenses may change unexpectedly during renovations. Thus, property inspections are crucial at the various stages of the investment. Take this into account as you plan your investment and budget for expenses.
In conclusion, there isn’t a single measure to determine the best type of investment property. The factors and variables at play are numerous and differ from one individual to another. Hence, they can only be assessed and determined by the investor looking to buy an investment property.
