Page 25 - Demo

Long-term Rental Property Sector:
Believe it or not, in most developed countries the main reason why investors usually choose this type of investment isn't because they wish to be rental investors. In 80% of cases, they are investing in and for future capital growth.
The low rental return covers around 70% of the loan repayments and costs. The investor will service the loan and manage their investment property until the property has appreciated enough to either be re-financed to draw out the profits, or to be sold at the right time for the right price.
Properties suited for long-term rentals are usually larger properties suited for families with kids. The challenge with this type of investment is that they cost a lot to buy. A house in the suburbs in most western countries can cost over $400,000 USD. So more often than not this type of investment needs to be backed up by a 30-year mortgage.
The danger here is that what happens if the property stays vacant due to an unforeseen reason? In some cases being tied up to mortgages will put investors in danger of losing their whole investment if one defaults on their repayments one too many times. Investors who become successful in this type of investment always manage the serviceability factor before they bid on their desired piece of real estate.
Advantages of long-term investment properties:
• If bought at the right time and in the right location capital gain potentials will be great.
• If you have good long-term tenants it will minimize emergency repair and damage costs. Plus good tenants tend to pay on time which means a low chance of accidentally defaulting on your loan and staining one of your most valued assets, your credit rating!
Disadvantages of long-term investment properties: • Major repairs, and constant maintenance during the life of the investment.
• High property taxes that are based on land and improvement size.
• Bad tenants that do not pay their rent on time, or pay at all. What happens to your credit rating then? • Higher interest rates will add to your monthly loan repayments while lower interest rates mean more buying affordability for people needing a home which means less potential tenants.
Wise investors understand that they should never over commit themselves. If you have been in the real estate game for the past 20 years you have witnessed at least 3 major crashes in the housing market. During every crisis investors who have over-committed themselves tend to lose much more, if not all, when compared to other investors who can afford to wait it out.