It is usually believed that buying property can be the best form of investment in terms of returns. It can substitute you SMSF property investments which need skilled management and high acumen about money market. As such investing in property becomes a right choice for those who need hassle free returns. However, before plunging into real estate investment it is better you understand the factors like property cycle and cash flow.
Investment property usually develops through four stages that together form the property cycle. Mostly it is advised that an investment in a property must be incurred on the first phase of the cycle which is known as value or opportunity phase. This is the phase when a property with good potential for future capital growth is purchased in the market. The price of such property is nominal in comparison to the growth it is expected to have in future. Prudish investors usually tend to invest their money on a property during this phase. Then comes the phase when due to the growing confidence of the real estate investors on the growth of property value there is surge in the demand for the property. At the same time the rise in demand augments the price of the property. This phase is called growth or boom phase. Next comes the peak phase when the property price gains momentum as the demand for it keeps growing. In a hope to have profit novice investors usually take back home an unprofitable deal without realizing that the price is inflating artificially. Navigate here for more info about Perth property investment. The last phase is called correction phase when timid investors due to their impatience sell away the property in nominal price. This usually ends up being their biggest mistake as they fail to realize that after a fall in demand the property cycle usually gets renewed and the prices go up again.
However, while buying property there are other factors which should also be kept in mind. You need to know whether you want a property which generates cash flow or you would to settle for a property that leads to capital growth. When dealing with property you’ll find two existing philosophies, first states that one should always buy property that generates positive cash flow. It happens when your property yields return in the form of rental. Also it is believed that your property must yield 8% gross rental which should be more than your monthly expense that you incur on the management of your property. This increases the profit margin for you and keeps money in your pocket. Some believe the properties which do not generate rental neither leads to capital growth are negatively geared property. In fact such property becomes your liability as you are made to pay on its management and renovation which increases your expense along with your initial investment. Then there are those who believe that even if a property do not yield rental, it should have prospect of growth in future. The opinions regarding property investment are many but it is always suggested that before buying growth properties one should do a good research and study other factors like depreciation cost, net weekly cost estimate and no-cash deduction taxes which may affect the property value.