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Wednesday Jul 21, 2021

Questions to ask before investing in property

Property has been around as an investment option through the ages but that doesn't mean that it makes it any easier when looking into opportunities and choosing what to invest in. 

Property is a very vast sector and the first question that investors need to ask themselves once they decide why they want to invest in property; is what sector of property they want to invest in.

Sectors of property are divided mainly between Residential & Commercial. The Residential sector is all about housing the masses, from low-cost housing right through to high-end estate living. The Commercial sector deals with office parks, shopping malls, warehousing, factories and the like.

A combination of Residential & Commercial type properties is known as Mixed-Use.

Before deciding what sector to hone in on, one needs to look at the pros and cons of each.

The residential sector is currently being driven by the lowest-ever interest rates which has seen the sector pick up over the last 12 months. Previously a heavily-favoured buyers market, the residential sector is now showing more promise for sellers and developers, in spite of an economy that is still struggling.

Residential property is largely driven by the economy. When economic prosperity is rife, it often leads to property booms and increasing property prices. The opposite of that is a decline in buying and a stagnation in property prices.

The trump card that residential property has over commercial, is the fact that people will always need a place to stay regardless of what the economy or interest rates are doing. Those factors however, do drive people to either buying or renting. Commercial property doesn't quite serve that basic human need for shelter.

An upside in the buying market has been encouraging, however, the rental market has been particularly hurting in the last 12 months. Lower interest rates have driven more consumers to attempt to enter the buying market, and an influx of properties for rent due to development over-supply has caused an uptick in national vacancy rates. Combine this with a struggling economy, and you'll find a higher default rate from renters, hurting landlords' bottom line.

On the commercial front, there is more uncertainty than ever. Retail & office space has been hurting for some time now. Modern day trends have driven many businesses to down-size on office space given the ability of large amounts of staff to now work remotely. Even those businesses that require space for their factories will now have their offices and warehousing in one location, further putting strain on office space.

E-Commerce has been a big driver of the fall of retail space. With more products available than ever before and the ease of purchasing them, more & more consumers are staying away from malls and shopping centres and are buying their goods online especially in the midst of the COVID-19 pandemic.

It's not just retail goods but even services like going to the cinema to watch a movie or a trip to the hair salon that have seen a big decline in customer turnover. You can thank the likes of Netflix for that.

Albeit, times have been tough for those sub-sectors, some commercial sectors have shown great promise in recent times, such as the industrial sector.

Businesses that require warehousing have seen good growth in recent times leading to increased demand for warehousing space to produce and store goods which in turn is related to the increase in e-commerce activity previously mentioned.

An interesting and ever-growing demand is noted for storage space. With the rising popularity and in many instances, reasons of affordability; consumers in the residential sector are living in smaller densified dwellings, with the need to store items off-site. This has led to greater demand for storage facilities.

Both commercial and residential sectors have their pros and cons, hence the rise in status of the Mixed-Use sector. This is nothing new, however, given the strain on both sectors, landlords and investors are now leaning more towards mixed-use investments to help hedge their risk to downturns to either sector.

Once you've had a look at the pros and cons of each, you can then decide what sector suits your needs as an investor.

Which leads to the next question you needs to ask yourself: What am I wanting to get out of property investing?

In relation to the different property sectors, there are similarities and differences.

With commercial property, you deal mostly with businesses and contracts & less with people. In residential, you deal more with people and the blessings and problems people come with. Knowing which you prefer is critical to assessing what sector may suit you best, as these are realities you'll be dealing with.

Investing in residential property requires more input and scrutiny on your personal finances, whereas with commercial property, there is less scrutiny on the investor and more of a focus on the investment itself. If you have a preference for investing in residential real estate, and have a strong financial background, residential investing could be for you.

To invest in commercial real estate, a strong financial background is not necessarily required, but may require partners or other investors to make deals work. Your personal financial situation is important in deciding which sector you invest in.

Probably the most critical element of deciding what to invest in is to ask yourself, how am I going to pursue this?

There are two ways to go about this. The one way is to go about it yourself, scouting for deals, building relationships and networks with suppliers, partners, property managers and banks. The other way is to invest passively through institutions such as REITSs, property funds and public and private property companies. These institutions have all of necessary resources and expertise to invest your money without you having to do any of the work. The real work that you have to put in is to distinguish which of these institutions have your best interests at heart and can use your capital to provide you with an excellent return.

KOURO Property Group offer incredible returns that you can comfortably rely on when compared to other investment options. We build equity into once-loved properties and under-utilized opportunities that allow us to extract the maximum value out of them. This allows us to pass on exemplary returns to our investor partners who we endure to build solid long-term relationships with in order to replicate this successful process over and over again.

Matt Koury
Co-Founder at KOURO Property Group

    
 

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