Anna lives in Sydney, Australia. She’s your typical next-door single mum with two kids and a steady day job. And she recently got a bonus for doing an awesome job with her company this year. It’s more than what she initially thought, and she decides to do something with it other than shopping. For a while now, she’s been curious about property development and investment property—but her interest has been piqued more by the latter.
So, she decides to give investment property a shot. She’s in front of her laptop and types the words in Google.
As soon as she presses 'Enter', her eyes understandably widen as she realises there’s just so much on the subject. Now, she’s a little short of confused and unsure of what to do next.
Well, perhaps you find yourself in Anna’s shoes or are just plain curious about the world of investment properties? Or are you looking for a way to earn passive income? Or, maybe you’re already immersed in real estate and now ready to commit to being a full-time property investor?
If your answer is “yes” for any of these questions, then, you’re in the right place.
All property investors want to land the perfect property for their portfolios. And it all starts with understanding the type of properties available. So keep on reading to the need-to-know what’s what with investment property today.
Table of Contents
- 1 Wait! Let’s Define What Investment Property Is
- 2 Why Purchase An Investment Property?
- 3 But Is It Worth Investing in Properties in the Long Run?
- 4 Interested? There Are 4 Investment Property Types Out There!
- 5 What type of investment property should I commit my money to?
- 6 Investment Property Type 1: Vacant Land and New Developments
- 7 Investment Property Type 2: Residential Property
- 8 Investment Property Type 3: Commercial Property
- 9 Investment Property Type 4: Mixed-Use Property
- 10 “So, Which Property Type Works Best for Me?”
- 11 Here Are Other Stories To Satisfy Your Curiosity
- 12 References
Wait! Let’s Define What Investment Property Is
In straightforward terms, an investment property is a real estate property that you buy with the aim of getting a return on investment—by way of the future resale of that investment property or rental income or both. It can be a short-term endeavour or a long-term venture.
If it’s a short-term investment, an investor often engages in the game plan of buying, remodelling, or renovating real estate, then selling it at a profit within a short time frame (also called 'renovate and flip'). For investors who go into it for the long term, they work out a strategy — usually from 5 years to almost 20 years in some cases. From there, they conduct due diligence to pinpoint the most profitable, highest and best use of a property.
Why Purchase An Investment Property?
People go into investment property for many reasons. More often than not, there are people—like me, for that matter—who aim to gain financial freedom as we live life and build our families’ future. And this kind of financial freedom I’m talking about is not merely about being able to buy more stuff without worrying about the cash.
It’s the kind where you’re free from debt and can live comfortably within your means without worrying about funds for your future needs. So this initial vision was my big WHY—the reason that I went to investment property.
You need to ask yourself what your big WHY is before you even think about properties. You might have goals and dreams that you’re aiming to come into existence sooner than later. But you realise that the job you have now only helps in paying the bills. And you wonder if going into investment property can help you take one step closer to attaining your life goals, such as
It’s true: Financial freedom brought about by going into investment properties can lend a hand in making any of these dreams become a reality. No matter what your big WHY is, investing in properties can be the vehicle you ride on to arrive at that future.
I once sat down with best-selling author and property investor expert Steve McKnight and interviewed him. It turned out that he also envisioned financial freedom for himself and his family. For him, financial freedom meant contributing, adding value to people’s lives and being productive while also being able to be an intentional and present dad to his kids—especially during their formative childhood years. He and his wife wanted to allow their children the chance to experience a life that they themselves didn’t have growing up, without spoiling them, of course.
And that compelling mindset helped propel him to the direction of investment property.
'I think for me, the vision was financial freedom which is working when you want, how you want, when you want, and with whom you want. And that was always the dream.'
With persistence and a whole lot of not-giving-up and carefully implemented strategies (yes, even when he and his initial business partner parted ways then and he had to go solo in his investing career at the beginning!), he still forged right on ahead.
Investing in real estate for more than 15 years now, he has garnered hundreds and hundreds of properties in Australia, New Zealand and the United States under his belt!
Okay, so that’s one way to go, right? You yourself can be on your way towards financial freedom via buying an investment property. Whether you have a full-time or part-time job (like Anna!) or are looking into starting a career in real estate, you can start investing in properties.
But Is It Worth Investing in Properties in the
Like I mentioned earlier, it can be pretty daunting for first-time investors. I felt intimidated when I first started. But with the right mentors and by doing my due diligence, I was able to take the leap—and stay on this route for a while now. Since then, I’ve learned a lot and am still learning about investment property.
Here are three big reasons why I think it's worth going into the investment property track in the long run:
Investment property grows and compounds over time so it actually enables you to build wealth over the long term.
It's a physical asset, which has value and can be seen, touched and changed. In comparison to shares, which you can't touch and control, investment properties are a much better investment.
The wealthy keep their money in properties, and investing in properties is something that has a proven plan that works if you just follow the fundamentals.
Think of Meriton Founder Harry Triguboff who has developed around 60,000 apartments—that’s somewhere around to 2,000 per year—as part of his impressive portfolio of overseeing 75,000 residential dwellings’ construction. His investments yielded a high cash flow because he’d followed the fundamentals when he first went into investment property.
Clearly, Harry Triguboff has been building his wealth over the long term, ever since he’s started. And he still keeps investing.
The bottom line, is whether you go into investing in properties in the short or long run, the advantages are undeniably there.
Interested? There Are 4 Investment Property Types Out There!
As with any options we have in the world—like with water, there’s cold, lukewarm, sparkling, mineral, hot, et cetera—, each type of investment property is unique. And there’s not one that is exclusively 'the best'. It simply depends on the angle from which you want to approach real estate, development or investment.
In my experience, I delved into what I determined was best for my situation and that is different for everyone. But before I made any major decisions, I made sure I did the research and weighed the pros and cons.
Along the way, I discovered that I must consider a lot of other things when buying an investment property in the long run, such as the future capital gain and the capital gains tax that come with it, plus a mortgage and financing. And there were other questions I needed to ask myself:
Yes, these are all important questions. And they seemed overwhelming at the time to me, too. Figuring out what to do first can be daunting to any new investor.
But wait, don’t worry! When I initially started in my investment property journey, I just needed to answer just the one, first crucial question:
What type of investment property should I commit my money to?
As soon as I answered that, I was able to move forward from there. And you can do the same. Now, to help you out, I listed down the four most common investment property types and the basics about each one.
Investment Property Type 1: Vacant Land and New Developments
Property entrepreneur Nhan Nguyen recommends this type of investment property to his clients. He had bought his first three properties by the time he was 21 years old, and his biggest development project netted him a $1 million profit.
This investment property type is really, more often than not, suitable for property developers. Typically, you’re taking control of a plot of land that you’re going to build on. And that means you need to understand what the local market wants. Plus, it means you need to commit time and energy to turn the development into a reality.
If this investment property type is the route that you want to go down, you must start small—which is something that Nhan Nguyen recommends to his clients. He also wants to educate other developers of this fact.
'When I suggest with people starting doing developments, whether it’s just a granny flat at the back or building a duplex is thinking big and starting small.'
Nhan Nguyen makes it a point to know what his limits are, when to move fast, and when to slow down before deciding on his multiple investment-related projects. And it would benefit one to follow his example. Trying to run before you can walk could lead to your downfall after all.
This type of investment in vacant land and new developments offer a wealth of opportunity. You can customise the deal and build specifically for the market. However, you also need to recognise that you’re taking on more work in the process.
To make it easier for you to see the big picture, let’s look at the pros and cons of going into this type of investment property
INVESTING IN VACANT LAND AND NEW DEVELOPMENTS
If after thoroughly considering all sides and deciding that this type of investment property is the best choice for you, then be ready to go all in. You never know—you can be on the same path Nhan Nguyen once walked on.
Investment Property Type 2: Residential Property
This one is the type of property that many think of when they imagine themselves as investors. It’s also the type of property you’re likely most familiar with, especially if you own your own home.
Typically, your goal with residential property is to take on a tenant so you can generate cash flow. On top of this yield, you will also look to create capital growth if you decide to refinance or sell the property.
It’s a strategy that property investor, best-selling author and Somersoft Founder Jan Somers has put to good use. She’s the housewife millionaire who has built an amazing portfolio of residential properties. When I sat down to talk with her, she shared a lot of useful advice for new investors who would want to go down this route:
'When you buy a property, I’d suggest you buy a medium residential price because that’s the sort of property everyone wants to buy in the first homeowner’s market. It’s the kind of property that everyone wants to rent.'
She also raised a good point about one of the challenges of investing in residential property: You must always consider what the market wants.
Sometimes, you may find a property that seems perfect at first. However, if you discover that it’s not what the local market needs, that property can become a money sink.
On another note, if you take on a tenant, you also have the property management side of things to consider. Still, residential properties can prove profitable, assuming you know what to look for.
Again, let us look at the pros and cons of this one.
INVESTING IN RESIDENTIAL PROPERTY
This investment property type also reminds me of the story of experienced property investor Kevin Young. He has been in the real estate market of Australia for more than 50 years and has notably made an impressive 600 purchases over that period.
He actually bought his first property when he was just 21 years old and had to work three jobs to buy it. The second one he bought shortly after that was a residential property. And that was when he discovered that he preferred investing in residential properties over commercial ones.
During my interview with him, he shared the advantage of having this type of investment property. He pointed out: 'With the residential property, all you’ve got to do is halve your rents, and you’ll have them line up around the block to take the property.'
If you think that this type of investment property is for you, then take that leap like Jan Somers and Kevin Young have done.
Investment Property Type 3: Commercial Property
As the name implies, commercial properties are any type of property from which a business can conduct its operations. It’s true that on the surface, it seems like this investment property type is similar to residential property.
Yes, you’re still buying a building and taking on a tenant, even if it is a different type of tenant. However, the big difference comes in lease lengths.
Successful long-time property investor James Dawson has a powerful portfolio of commercial properties. He has been in the investing world for over 40 years now. True enough, he started his career as a real estate agent before moving into investing. And although he has experience investing in both residential and commercial properties, he’s pointed out that it is considerably easier to add manufactured growth to commercial properties compared to residential ones.
'So you know there’s this huge, many opportunities for manufactured growth in commercial [property]. I mean it’s similar to the idea of someone’s putting a granny flat or something on the back of a residential property. It’s that on steroids.'
Also, in one of my interviews with him, I remember him aptly explaining how leases with commercial property differ from residential investments. He said: “I think that the prime difference is that the commercial investment is driven by a lease. So you’ve got a number of factors that really tie your investment to the lease.”
He then provided the example of a hair salon business that’s been in a rented commercial property for some time: 'They’ve probably spent quite a lot of money on a fit-out in that property, and they’re making their livelihood from their property. So they want to have a long lease and they sign it for 3, 5 or even a 10–year lease. That’s a huge difference. For example, a 5–year lease [in a commercial property] makes a big difference compared to, say, a 6– or 12–month lease that you may have with a residential property.'
But of course, you have limitations when it comes to commercial properties. When venturing into this type of investment property, you need to buy with a business in mind. And you must give a level of control over to your tenants. After all, they need to turn the property into something that works for the business.
You must also note that if a tenant leaves, you may have to spend more to refit the property. Nevertheless, commercial leases do last longer and often provide higher yields than residential properties.
In a nutshell, here are the pros and cons of this type of investment property.
INVESTING IN COMMERCIAL PROPERTY
Investment Property Type 4: Mixed-Use Property
When I began investing, I bought a mixed-use property first—commercial on the bottom and residential on the top. Mixed-use properties offer the best of both the residential and commercial worlds.
Typically, like the first property I invested in, mixed-use properties have a retail outlet on the ground floor and residential units above. That means that you can claim rent from two types of tenants for the same property. And because you usually have a long lease for the commercial client, you can cover the shortfall if a residential client leaves.
It’s like having the best of both worlds, so to speak.
One of the people I know who like this type of investment property is Harry Charalambous. He is a commercial property investor who owns a mixed-use property in St Ives as part of his whopping $20+ million portfolio. He’s also one of the directors of Plan Assist Property Team. This team runs a business of giving property investors the help they may need to purchase properties. Plus, their business is also geared towards developing those with a focus on manufacturing equity in investments.
It’s worth noting that Harry Charalambous began a career in the electrical business—from doing an electrical apprenticeship when he left school at 15 years old to running and owning his own electrical business at the age of 19 until he was 35 years old. Nevertheless, his early experiences gave him the grounding on investing, renovating and selling property he would need later on. In fact, he actually bought his first property at 18 years old!
That’s proof that going into investment property and growing your portfolio should not be limited even by your age. What matters is you do your due diligence and work smart in your strategies.
'I’ve seen people that come into their first property deal and may have a home—or it may even be before they’ve bought their own home—and they’re looking to do their first property purchase, and they’re looking for that first purchase to be their retirement fund. Just start small. Treat your investing journey like you do your business journey.'
Much like Harry Charalambous, you could use this type of property to lend some diversity to your portfolio. Still, there are some unique issues related to mixed-use properties that you must consider.
Check out the pros and cons of investing in this investment property type.
INVESTING IN MIXED-USE PROPERTY
“So, Which Property Type Works Best for Me?”
Like what I said earlier, it really starts with that one question when you venture into buying an investment property. And, whether young or old, every investor’s journey is unique.
For instance, I myself prefer investing in residential properties. It's always in high demand in the market because people will always need spaces to live in. Whereas, I discovered that my least preferred types of investment property are the ones in regional areas. Yes, they’re a good source of positive cashflow, but there’s not much capital growth there.
Each type of investment property has its place. Once you’ve weighed your options, your challenge is to figure out which works best for you. Then from there, you need to build a strategy around that type of investment property—and, naturally, you’ll need to find the ideal property for your portfolio. And that is where we come in.
We at Property Investory can help you buy the type of investment property that your portfolio needs. We can recommend the buyers agents who will ensure you get a good deal on a property that serves your strategy.
Just fill in the form below to get started! Like what Steve McKnight once insightfully said when asked about his own real estate journey: 'If you want something, make it happen yourself.'
So start now and don't put it off. The best time to invest in property is now.
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- Renovation Tips for Your Investment Property With Oliver Jackson