There are few investment markets as volatile as worldwide real estate with hotspots appearing and disappearing on a regular basis. The changing flow of funds into any real estate market can have a massive impact upon prices as we have seen in various markets around the world. There are obviously ways and means of crystallising short-term profits but does the old tradition of long-term property investment still hold weight?
We will now take a look at the various benefits of long-term property investment as opposed to short-term speculation.
Long-term steady income
Cash flow is king in any investment market and it is certainly very important when looking at real estate investment. The vast majority of real estate investment will likely include a significant element of debt used to fund an acquisition. This will demand constant cash flow to keep up repayments otherwise a flourishing property portfolio could come crashing down.
This is why many of the more successful real estate investors have a number of properties they have picked up over the years offering attractive yields. If your property investment is able to create an attractive income stream in the longer term then it will eventually pay for itself leaving another asset you can use to raise funds. The subject of capital appreciation should always be in the back of your mind but at the end of the day this will eventually follow if your income streams remain constant or grow in real terms.
Building a portfolio
There are obviously ways and means of building a relatively large property portfolio in a relatively short space of time. There are various opportunities to gear up your investment with additional debt and use assets as collateral for new investments. In buoyant markets this type of high-risk investment strategy can prove to be extremely lucrative but in difficult more volatile times it can be disastrous.
The simple fact is there is no short cut to building a large long-term property portfolio. There will likely be short to medium term opportunities to bank profits but these should be seen as bonuses as opposed to core investment strategies. The simple fact is that if you acquire real estate assets offering attractive yields they are likely to appreciate in capital value in the longer term. Cash is king, cash flow is vital and those who live from day-to-day by buying and selling property on relatively small margins will find it difficult in the longer term.
Financial prudence
You should always ensure that you maintain financial prudence and never overextend yourself into a situation where you may be forced to sell part or all of your assets. There may be times when you can speculate with a small percentage of your real estate investment funds but speculation should never be the main plank of your long-term strategy.
We only need to look at the 2008 worldwide economic collapse to see the number of property investors that saw their portfolios crashing like a pack of cards. Many of these investors made good money in the good times but continued to overextend their exposure and paid a heavy price. Those who acquired properties on a long-term basis offering attractive yields and constant cash flow were in the main able to ride out the volatility of the worldwide economic collapse. People will always need somewhere to live, rental rates may have softened during these difficult times but as long as cash flow was able to cover financial repayment obligations these investors lived to fight another day.