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The range of choices available to a property investor are many and varied. They are listed here roughly according to the amount of control an investor has over their management.
- vacant land;
- spec, or project home;
- commercial property;
- residential dwelling;
- country property;
- property syndicate; and
- property trust.
Vacant land. Land which does not have a building. Usually in the outer suburbs of a city. It can be a good investment if you don’t want to spend a lot of time managing your investment and you don’t need an income.
Spec, or project home. A building is constructed for the purpose of selling it for a profit. If you have good connections in the building industry and especially if you are empolyed in the building trade, this might be suitable for you.
Commercial property. Retail or industrial buildings enjoy higher rents and more control than residential properties. Some specialist knowledge is needed, though.
Residential dwelling. Most property investors start with this type because they know at least something about houses. Most of my property articles will refer to this category.
Country propery. I include vacant land and all types of buildings in this category. Distance and low turnover are the main obstacles here.
Property syndicate. A group of investors are collected by an accountant, lawyer or promoter to develop land. Regardless of how good the investment sounds, your relationship with your partners is critical to success.
Property trust. A group of investors can pool their money to buy something big which otherwise they could not afford. They are sometimes called unit trusts because investors can sell part or all of their investment to other investors. They are sometimes listed on the stock market, although that does not guarantee a profit.
Properties which are not (good) investments.
Some types of properties are marketed as investments even though they make poor returns or are not for the purpose of investment:
- your residence;
- holiday homes;
- timeshares; and
- managed apartments.
Your residence is the place where you live. You buy it to make yourself comfortable. If you do everything in your house with a mind to whether the general market would like it you are surrendering part of that comfort. If you sell it, you will still need to live somewhere.
Holiday homes, like residences are for personal enjoyment. They are usually in remote locations, so (as an investment) they have the same problems as country properties without the benefits.
Timeshares are usually an apartment or villa in a holiday resort. You can buy the right to use it for a set number of days each year. I do not know anyone who considers this to be an investment, other than the promoters of these schemes.
Managed apartments. Every apartment complex has a body which manages the parts which are jointly owned by all the owners (e.g. a swimming pool, garden, elevators). In a mangaged apartment, this body is not controlled by the owners and also has the responsibility to care for the apartments and/or arrange for their rental. These properties rely very much on the quality of the management and they often have poor resale potential.
Which type of property investment you choose depends on your experience and budget. I will tell you more about their pros and cons in the articles to follow.
Have I missed any types of property investment? Do you agree with the ones I have excluded from ‘investment grade’?