Property has always been seen as a relatively safe investment, at least until the recent global recession, which was arguably triggered by banks overselling mortgages. As the world finally begins to recover, now might be one of those once-in-a-lifetime opportunities to purchase real estate at prices that may never be repeated. One word of caution: with interest rates at all-time lows, there is only one way for them to go, which may put a damper on real estate prices in the short term. Given the current fragile state of the US recovery, there is also the possibility of unexpectedly wide price fluctuations occurring over coming months and years.
The accepted way to leverage the maximum return on investment is to purchase run-down properties in need of fixing-up and bank repossessions. Purchasing new-builds is not as profitable as the scope for improvement is limited. When buying to rent, remember that you will not be living in the property, so don’t decorate it to your own high standards and personal tastes; instead, set a middle of the road-remodeling budget and stick to it.
When looking for a property, spend some time checking out your chosen area. It is always a good idea to stick to areas with which you are familiar and to research how they are likely to develop over the next decade or so. Check out unemployment rates in the neighborhood and try to ascertain if it is an area set for regeneration.
Having gained experience in a city you know well, you could use your new-found knowledge to invest in real estate in other cities, specifically those with falling unemployment rates and a growing commercial base. Consider investing in neighborhoods that are currently on the fringe of the suburban sprawl in the expectation that as the city grows, so will demand and hence real estate prices. When looking at purchasing real estate in these fringe areas, identify where commercial properties are likely to be located – residential neighborhoods close by frequently command higher prices than those further away from such amenities.
As with any investment portfolio, it is always advisable to build it slowly over time. In the case of property, it makes sense to spread the risk by purchasing a selection of styles, including condos, apartments, houses and perhaps commercial premises in various neighborhoods of your chosen areas. Take advice from professional investment management firms and specialists. Fortress Investment Management Group LLC has many years’ experience in many aspects of developing strategies for private investors, including real estate. Executive Peter Briger, who is Principal and Co-Chairman of the Board at Fortress, joined the company in 2002 as a global investment manager, having gained a BA from Princeton and an MBA from the University of Pennsylvania. He then spent 15 years working at Goldman Sachs, where he became a partner in 1996. With such a wealth of expertise to draw on, you can be sure of receiving the best possible advice.
Though real estate prices tend to outperform stocks and bonds over the long term, they do fall, as has been the case in recent years. Proceed with caution; research all aspects of the property market, both nationally and locally; and, above all, seek the advice of experts.