The Basics of Property Investment Returns

Anyone considering a move into the world of property investment will be concerned above all by one thing: what they are going to get out of it.

After all, returns are what investments are all about. What kind of investment loan you choose, where you buy, and whether you engage the services of a property manager are just a few of the decisions that will be taken with an eye on the likely returns of a given property.

So what are the main sources of recompense to be had from investing in property?

Let's have a look at the two principal ways you can gain from your dip into the property investment pond.

Rental income

The key to generating a steady income is to get reliable tenants into your property and then to keep them there!

Much like some sharks need to keep swimming to stay alive, it is imperative that your rental income keeps flowing, as otherwise you may need to step in and put your own money towards loan repayment obligations, for example.

That's not the plan - whether your rental income will be covering mortgage repayments or not, it is a key part of the return that you have invested in search of.

There are many things you can do to improve the likelihood of avoiding long periods of vacancy and the stress that this could bring.

When choosing an investment property to purchase, one of the chief criteria governing your decisions should be how attractive certain dwellings are to tenants.

As an example, an incredibly designed house with stunning ocean views may seem like it would be irresistible to anyone, yet if it is located far from population centres and transport infrastructure, it may be a hard sell to renters, who can often be young professionals or students that value proximity to urban or regional centres.

Capital gains

Another way that a property can generate a return is through capital gain - you buy it for one price and at some stage in the future you manage to sell it for more.

Evidently, something needs to happen in the interim that affects the perceived market value of your investment asset.

Whether or not a given property will appreciate in value depends on many factors including property sector trends, the state of the economy, demographic growth, luck - and many more.

For instance, the expansion of public transport routes within a suburb can improve its attractiveness in the eyes of those working in employment centres in neighbouring suburbs. As they start to buy up properties, the increase in demand can drive prices up all across the area.

Another scenario is that a relaxing of interest rates can encourage more first home buyers to enter the market, which could boost activity in many different locations, having a subsequent effect on median house prices.

Time is a critical factor when it comes to capital gains and the length of time owners wait before seeking to profit from the sale of their investment properties can have a significant impact on their return.

That's because the property market is not a straight line on a graph but tends to more closely resemble the printout of a Richter scale reading after a series of small seismic events.

There are often a lot of ups and downs over the short term. These can make for exciting opportunities for the fleet of foot, yet usually the longer you hold on to a property the more likely you are to benefit from the tendency of property to appreciate over the long term.