This one of the most common question asked in real estate is… what is the best investment? The truth is, selecting the best investment depends on what you want out of the property. Each investment is different and can perform differently. It all depends on your strategy.
If your strategy is to build a high capital growth performance portfolio with a view to sell down assets upon retirement your property strategy will be quite different to someone’s who is planning to pay down all debt and retire on the passive incomes generated by rent.
There is no right or wrong way to determine the debt retirement approach. If you do not have a strategy prior to investing that is when things can go south. So enter with a firm plan in mind. Having a clear end goal in mind is very important. There is no point saddling up for extreme debt in the hopes of catching strong capital growth if you have imminent plans to retire.
Property is a LONG game!
Without adequate cashflow to service the shortfall of rent vs outgoings, you will find that your investment is draining your lifestyle budget to the point that it is impacting on your happiness and other commitments. Sure every investor wants to own the most stylish and expensive home in a blue-chip suburb but, we all have to start somewhere – select a property in your means.
Take this diagram as a loose guide.
If the investor’s rental income is greater than the outgoings (eg mortgage repayments, rates, insurances, maintenance fees etc), the property is classified as cash positive. If the property is completely financed and the outgoings are larger than the income then the property has a negative cashflow. Note that this is without discussing tax benefits for either circumstance.
Finally invest in numerous areas – be diverse with you investments. If you own 3 units in the same area, buying one more will keep with in the same market with the same patterns. This means if that area is effected by the market or even the state/federal cuts or even initiatives then all of your investments are effected. When it comes to investing it does not pay to put all of your eggs in one basket.
Rather than asking “what is the best investment property?”, ask yourself, “what is the best investment property of me?”
One financial model does NOT fit all.