A residential investment property is one that is made available for tenants to live in, as opposed to being available to businesses to operate from (called a Commercial Investment Property). Most people commence their property investing experience with buying a residential investment property: usually this will be a single-family dwelling.
Many investors will buy their first residential investment property in their own city, and sometimes even in their own neighbourhood. Being able to drive past your investment property certainly makes the investment feel more tangible and secure. (Not to mention it’s an enjoyable experience: it feels good to drive past a property that you own, especially one that delivers a paycheque to you every month!)
Of course, people also buy their investment properties all over the country. If people are buying an investment property in a place other than their own city or town, they usually choose to buy in a city, generally a major city. The perception is that a property in a major city is more secure, more likely to be rented, and more likely to increase in value. Sadly, none of these factors are a given: it’s important to carefully analyse each potential property carefully before assuming these things to be true.
Properties in cities are generally far more expensive that those available in smaller cities or rural areas, and while they may attract higher rents, often the amount you spend every month to purchase and operate a city-based investment property is much more that you receive in income. This is, interestingly, a popular investment strategy in Australia: called Negative Gearing.
The Strategy Of Making A Loss On Property
Negative Gearing is popular because it allows people with high taxable incomes to pay less tax: their high income is reduced due to the losses they make holding the investment property, so they pay their tax based on a lower income figure. This strategy allows a high income earner to spend money they would otherwise lose in tax to purchase a property that hopefully will increase in value over the years or decades they hold it. Eventually, the property will be worth a lot of money, and can be a handy asset to have as part of their retirement funding.
There are some investors who look at Negative Gearing in a different way: they see it as tying the investor to a job or business for many years, working effectively to supplement a tenant’s rent. Granted, the investor will end up owning a residential property that hopefully will be worth a lot more than it was when it was bought. Although, as was said earlier, this is not necessarily the case.
Buying For Cash Flow
Other investors prefer to use residential property investment strategies that are cash-flow positive: ones that put money into their pocket every month, rather than taking it out. There seems to be a general perception that properties that can be used for these strategies are extremely hard to come by, and if they can be found they will be found in rural or less desirable city locations: but in fact, it is possible to find cash-flow positive properties everywhere, even in major capital cities. Of course, the savvy investor knows that they may have to do something to the property to create a positive cash flow: and of course, the savvy investor also has the tools to analyse the feasibility of their intended strategy, and have confidence in its success, long before they have committed time and money to the deal.
You’ll find this site will have many great articles about positive cash flow strategies, and other ways of making a profit with residential investment property. The critical factor is the analysis process, which is why John Bone developed his amazing Real Estate Investing Software. It helps any investor analyse property like a pro!