Uncertain times always create opportunity, especially in real estate.
Good buying exists not just in the residential sector but also for commercial property and in real estate investment trusts.
Don’t let the media’s focus on house price fluctuation and auction clearance rates sway you from considering all the alternatives in real estate.
Here, we’ve broken down some key facets of investment in residential and commercial real estate, plus REITs. In doing so, we urge you to seek professional advice before making any decision. Your personal circumstances and financial goals are the most critical factors in any decision.
Residential
- Keen buyers can profit as the market initially softens because of the economic impact of the coronavirus.
- The residential sector is seen as low-risk, and historical data suggest that over a seven to a ten-year period property in cities and many regional areas will double in value.
- The barrier to entry is lower than in a booming market. You can seek out apartments for less than $200,000 as an initial investment in some markets. These prices will likely spring back when the virus crisis is over and confidence returns.
- If you’re looking to flip a property, then once the crisis ends, you’ll be able to take advantage of the increasing number of buyers returning to the market.
- If you’re thinking of renting out the property, then a price correction will make it easier to get your sums right. While rental markets are under pressure in Sydney and Melbourne, you should still be able to net around 5% per annum, plus additional capital value when the market returns to better times. Again, seek professional advice before making your investment.
- If you like the idea of a “fixer-upper”, then good buying should be available, although these properties can be scarce. If you don’t mind paint and plaster under your fingernails, a neat profit probably beckons.
Commercial Property
- Commercial property can provide twice the revenue stream of residential.
- Economic cycles have a big impact, which is why smart buying exists today. There’s a downside, of course. If you’re thinking of a long-term investment, you’ll have to factor in your own ability to survive such downturns.
- The barrier to entry is higher than residential. Because commercial properties have healthy economic streams, it’s hard to get into this sector for much less than $500,000, and even then the property is likely to be very modest.
- You’ll need a decent stake in your pocket to get into the game. Banks usually want a 30% deposit for any loan.
- Do your homework. Prices and on-costs vary for property servicing retail, light manufacturing, warehousing and so on. This is a specialist area and, if you are without experience, seek the advice of real estate agents and your accountant.
- Given the changes in working behaviour created by COVID-19 with working from home becoming normal, you should also consider the long-term prospects of this sector carefully.
Investment Trusts
- You can use these trusts to get into the property game, but you do not gain the tax advantages of investments in the commercial or residential sectors.
- You won’t be able to borrow against a trust investment as you can with bricks and mortar, which may be an important facet of ownership for you.
- Quick access to cash is a definite plus. You can sell your stake in REIT much faster than you might sell a property.
- Returns of 20% are not unheard of, but the immediate future performance of REITs is difficult to gauge in the current economic upheaval.
- Most REITs focus investments in bluechip properties where tenants tend to be established companies with long-term leases.
- Investment is comparatively hassle-free. You’re not a landlord, so you’re not forking out cash to fix a bathroom leak or replace the bitumen drive that was washed away in a flood.
In summary, it’s best to talk to your real estate agent and financial advisers to discuss the current opportunities and discover what best suits your financial strategy and goals. Make sure you receive professional investment advice tailored specially to your personal circumstance. The Property Investment Professionals of Australia (PIPA) is a good resource to help you find a qualified adviser.
