MONIE Orchards - Personal Financial Planning
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MONIE Orchards - Personal Financial Planning
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Should I invest in property?

2022-10-11
And there is a question that goes with that: if yes, then when?

There are a number of aspects to take into consideration:
What are the benefits and disadvantages of purchasing real estate?
What does the rest of your investment portfolio look like?
What type of property?
Residential, commercial, industrial. (Other than in this section, this article will focus on residential property investment.)
Your own living area vs buy to let

Benefits and disadvantages of investing in real estate.

Benefits
⁠
@Leverage
⁠
. Purchasing real estate is the only investment where banks will as a matter of course lend you money to make the investment. It shows that even bankers think that real estate is a worthwhile investment over the long term.
Scarcity. There are two aspects to this. One is the fact that land is a finite resource, at least until Musk gets us to Mars. The second is that I am not aware of a single country that has a problem with an oversupply of housing, rather much the opposite, ESPECIALLY in the area of affordable housing.
Disadvantages
⁠
@Leverage
⁠
Leverage can also work against you, especially in the first few years after you purchased a house, should the market turn against you.
Liquidity. Property investments are extremely illiquid. If you need to find cash quickly when your only investment is real estate, you are in trouble.
Maintenance. Whether you stay in the property, or rent it out, properties need to be maintained.
Tenants. If you own a buy-to-let, it comes with tenants. You will either need to deal with finding and maintaining tenants, or pay somebody to do it for you.

Investment portfolio

In deciding whether to purchase a property it is necessary to address
The Essential Financial Questions
⁠
in your (financial) life. This is true whether you are purchasing your dream house to live in, or an investment property. For most people, purchasing a property is the biggest investment they will make.
Address the essential questions as part of purchasing a property:
What happens if I become sick or unemployed?
What happens if I die?
One of the major disadvantages of property investment, is the fact that it is very illiquid. What if you need cash, need to move house?
Make certain that you have responses to those questions.

Property Types

Residential
There is a larger variety of possibilities here, from single family to high-rise apartments, from sub-economic to luxury.
There is also a big variety of ways to invest in property. On the one end is the person owning the place where they stay, with maybe one or two rental properties, all owned outright. There are property investment clubs, big and small. Growing in size in America is crowd-sourced property investments, in South Africa you have property stokvels that are growing, all in various flavours. Also available are REITs (Real Estate Investment Trusts) specialising in different property types.
Owning the home you live in is a popular and good goal. But be aware that statistically you will live there for 8 years. And shorter when you are young. Take into account that buying and selling residences can become very expensive if you move frequently.
Commercial
This includes offices, shops and shopping centres. These kinds of properties are very specialised, and can easily be over-developed. They are very exposed to the economic cycle. And over and above the fact that we are in a very precarious point in the economic cycle at the moment, society is also undergoing some major changes as far as where we work and shop.
Industrial
This includes factories big and small. These kinds of properties are very specialised, and can easily be over-developed. They are very exposed to the economic cycle. Factories can be very good long term investments, with successful manufacturers staying for very long periods.

Now to answer the question: “Should I invest in property?”
And the answer is, it depends. Property can be an excellent investment, and I think it should be in an investment portfolio in some or other way. But it must be carefully managed to overcome the very real disadvantages.
And the second question: “If yes, when?”
I would be very cautious of buying a property in the current economic environment. Of course depending on the country that you live in, and your specific circumstances and requirements. But based on what I hear the experts* saying, we are in for a very bumpy ride in the next year or two. Wait until the coming crash has happened.

*Experts - These are not the people on TV or in podcasts. These are people that invest for a living. See my
Reading List
⁠
for examples.
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