Investing, in general, is not something that should be approached as a short-term venture. While there are day traders who sometimes make a killing executing a few trades, the majority of people find predicting the short-term movement of any asset to be close to impossible.
To do well as a property investor, it’s necessary to have the right perspective on it. In this article, we offer some thoughts on successful investors in bricks and mortar.
Reliable and Visible Cash Flow
Unlike a lot of stock market investing, the cash flow from property investments is fairly consistent and reasonably reliable. The income primarily, or exclusively, comes from the rent paid by tenants for a property that’s under your ownership (either indirectly through an investment vehicle or privately owned).
While stocks may pay 2-3% per annum, usually the stream of income from property investments is more reliable and highly visible. There is little concern about the questionable accounting methods where the income disappears, or dividend gets cut unexpectedly. Investors like property investments because they’re simpler to understand and the returns can be clearly visualised.
Being an Owner
While owning bonds is a valid thing, it usually pays minimal income (especially currently with historically low interest rates). Only when rates fall significantly do bond values increase providing an excess return above and beyond the original interest coupon alone. The inflationary 1970s and 1980s saw especially high bond returns but the last decade has been disappointing in a low-interest environment.
Being an equity owner in property brings you along for the ride. When the property increases in value, your total return goes up with it. Valuation uplifts and rents often track rising interest rates/inflation well over the years, making them better protected for subsequent interest rate hikes too. Being at historically low-interest rates, that should be a concern for investors looking over the horizon.
Medium to Long-term Perspective
While crowdfunded property investments may sometimes look at one-year periods, property investments can span many years. This is because property investing is cyclical with ups and downs experienced like with any other asset class.
When owning investment property directly and renting it out, it’s sensible to compare landlord insurance between providers because each insurer has pros and cons to their policies. By doing a price check on Quotezone, a landlord can see what deal they’re currently getting on their insurance for the property and make a change to be properly protected and avoid overpaying too.
For investors in crowdfunded solutions who prefer a more hands-off approach, it’s useful to take a medium to long-term perspective on returns. Having a 5-10-year strategy is not uncommon which helps to balance expectations. Also, being diversified between different asset classes like property, infrastructure, equities, bonds, and cash usually lowers overall volatility significantly to smooth the ride.
While the recent stock market volatility has also shown that the property market isn’t immune to feeling its effects, rest assured that all troubles eventually pass given sufficient time to do so. A steady hand is required by investors to go the distance and reap the benefits of being patient.