Are you worried about the booming property prices in your city? If so, don’t fret; it’s very possible to safely invest in these booming property prices, as long as you know what you’re doing and choose wisely when making your real estate purchases.
Here are some great ways to find the best investment opportunities while minimizing risk and protecting your finances as much as possible.
Why property investment is low risk
Despite booming property prices and strong returns over recent years, property investment is still considered a low-risk investment. This is because property has historically outperformed all other asset classes (shares, bonds, cash), due to its favourable attributes:
It’s physical – Unlike shares which are non-physical paper certificates and can be traded through a broker or held digitally on an exchange, properties have a physical presence that can be touched and seen.
When you own property outright it provides you with ownership rights that enable you to take care of it as your own home.
There is security of tenure – Tenants aren’t keen on moving out of their rental homes during a downturn when they don’t feel their job is secure or want to save money for living elsewhere.
What to look for when you invest
The safest way to invest in booming property prices is through real estate. However, you'll need to be wary of going for high-priced properties that are likely to crash when a slowdown occurs.
It's important that you do your research and find out what areas have experienced a boom, but then also know that growth has slowed down.
Are there signs of sustainability from an infrastructure standpoint?
Is there potential for business development?
Who are some of your prospective tenants?,
and how long do they plan on being there?
These are all things you should consider when determining whether or not real estate investment is right for you.
If you're unsure, it might be best to sit back and wait until market conditions stabilize before jumping into real estate.
And if you're already invested in real estate, make sure that it's cash flow positive before pulling money out of other investments to further diversify your portfolio.
If it isn't cash flow positive, don't do it! It doesn't matter if the value will increase at some point—you still can't afford to lose money on it!
How much should I invest?
If you’re investing for short-term financial gain, you should carefully consider how much of your cash is best put toward property.
For example, if your goal is to save enough money for a down payment on a house within three years, it’s not wise to invest more than 10% of your capital.
If you don’t expect an immediate return on investment, however, you can riskier and leverage up—investing more cash into properties that might appreciate at a greater rate over time.
Before investing any large amount of capital into real estate (or any asset), be sure that you have a solid understanding of what drives price appreciation and where markets are headed.
Purchasing property purely for its appreciation potential is risky business; buyer beware!
What if my main source of income collapses?
Considering taking a huge risk and jumping into an unstable industry with your life savings?
Before you do, it’s good to think through some worst-case scenarios.
Are you okay with losing every penny you’ve ever worked for if things go south?
What are your back-up plans in case that happens?
Can you afford to take a step back and take some time off until things recover, if necessary?
Will your family be able to survive on just one income for several months if things go wrong?
It might be fun to speculate about different investments, but remember that investing is more than making predictions.
It’s also about setting yourself up for potential losses and mitigating risks—to yourself and others.
Can booming property prices continue to rise?
As a long-term investment strategy, property can be a great way of building wealth, particularly if you're buying into growing markets or developing countries.
However, as property prices boom across many areas of the UK, USA and Australia, investors need to make sure they understand their investment and its risks.
With growth becoming increasingly dependent on government support and capital flowing into domestic housing markets around the world, there's increasing talk about whether we'll see another global financial crisis like 2008.
But what is a global financial crisis? Will you be able to recognise one when it comes? What do you need to do before one occurs? And how can you protect yourself from any potential fallout? Read on for more information about global financial crises...
The Bottom Line
There is no sure-fire way to invest and win in property investing.
To invest safely, however, it’s important to stick with proven strategies that have been successful over time. For example, investing in real estate always comes with a certain degree of risk.
But by focusing on market fundamentals and tenant screening—while ignoring media hype—you can minimize your risks and put yourself in a position for long-term growth.
Because at its core, success is about limiting your downside and growing from there!