The benefits of investing long term
Using a buy-and-hold strategy in the current market is more likely to generate lasting wealth.
Blogger: Helen Collier-Kogtevs, managing director, Real Wealth Australia
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During a boom, every man and his dog wants to jump on the bandwagon and try to make a quick buck or two from real estate.
But when the market enters a downturn?
The speculators disappear and the real investors stay put – and this is when there is real value to be found in property.
You can negotiate strongly in a down market, which suits those people who turn to property for an “easy way” to make money from real estate. However, they often fail to really consider the long-term benefits they’re missing out on.
Adopting a buy-and-hold strategy is my preferred way to invest and I believe that investing for shorter time frames is less likely to generate lasting wealth.
After all, when you invest for the longer term, you get so many more benefits, including:
1. More time in the market
Investing in property these days is at least a 10-year strategy. This is usually the equivalent of one property cycle, during which the capital value generally increases. In the past, it was said that property values doubled every 10 years but in the modern marketplace, this is no longer the case. Over the long term, property is a very forgiving asset class and if you chose a quality real estate asset in a good location, most property values will increase eventually.
2. Increasing rent returns
Some investors don’t take into account the long-term benefits of cash flow. They only see what the return is today without considering the benefits it will bring tomorrow. For instance, if you receive a 5 per cent return on your investment today, rental increases over time will lead to your investment providing you with a higher income, eventually making the property cash flow positive.
3. Potential for above-market capital growth
We know of an investor who purchased vast tracts of land in the outer areas of a major capital city. He saw something others could not see. He saw the future potential for the land and he acted on his due diligence.
Years ago, when he purchased the land, people thought he was mad and that he had made a huge financial mistake. Today, that land is worth millions of dollars and has been subdivided into smaller blocks and become part of a new suburb. The investor had the foresight to see that the urban sprawl would move out far enough to include his land.
My advice to investors is to try and purchase your property assets in a balanced way, so that your lifestyle is not greatly impacted. This will eventually make it easy to hold on for the long term and allow for maximum financial benefit.
When looking at purchasing properties, also consider the long-term effect of rent on your cash flow. However, do not underestimate the quality of your due diligence, because it can give you the edge and provide you with opportunities many investors would normally miss.
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