Investing in property

Are you thinking of investing in property at the moment? And I make a distinction here between buying a home to live in that will hopefully increase in value over a long time period and buying a property with the sole intention of making money from it.

Many people seem inordinately worried about the value of their home. Why? What difference does it make what your home is worth if it is where you live? None – unless you want to borrow money against it’s value. These same people are the ones who used their property as an ATM – and were encouraged to do so by the ever-increasing “value” and ridiculously easy finance. Most of them are eventually going to lose that property to foreclosure. This is not property investing – this was gambling, pure and simple.

This easy money has now come to a halt. One good thing that will eventually come out of the property market crash will be a return to some sort of rational lending practices by the banks – maybe.

If you are relying on the upwards value of a property to fund other property acquisitions or refinance the property in the future – this is property gambling. If you are fully capable to cover the costs of running and maintaining the property – either by rental income or from other sources, and are content to stay in for the long haul. This is property investing.

There is a fallacy that property always goes up in value. Over a long enough time period it does. But – as anyone who has tried to sell a home over the last year knows – there are some troughs along the way. Property is like any other commodity. It goes up and down in value in line with supply and demand. At the moment there is a lot of supply and a little demand. So prices go down. But – if you can hold on to your property for a long enough time period, it will have increased in value.

So if you are thinking of investing in property – be sure you are not just gambling. Make certain you are able to meet any repayments on the property without relying on it’s increasing value. Do not over extend yourself or over borrow. This is where most would-be property investors fall down.