3 Property Investments Not Meant for Low-Income Groups
Interest rates have come down significantly and those investors who have been in the game for a long time will vouch for how things had been a decade ago. In fact, fixed-rate loans they booked a decade or so ago still cost them a relative fortune in mortgage repayments when they compare them to certain other properties they bought a year or two ago.
The double-edged sword of real estate
The low interest scene has brought us face to face with a double-edged sword. On one hand, we fear being elbowed out of the fast paced race which may see prices growing relentlessly. And to secure our foothold we are ready to sacrifice anything. The urge to get into the market could not have been greater during any time in the past. On the other hand, this urge to get in might have us going out of our way and entering territories that we cannot find anything viable from. There are at least 3 areas where low-income earners should not venture in my opinion.
First is the off-the-plan purchase. There are just too many variables involved in the game and a majority of them are well outside our control. Did you know that the Sunset Clause is in itself a dubious piece of legal jargon? If developers are unable to complete the agreed project within the stipulated time, they can annul the whole agreement with the buyer.
Now, developers are no saints and they can always ‘gazump’ a deal if they find a better deal midway through the development of a property. It is natural then that they may use the provisions of the Sunset Clause to back out of agreements with the buyers? Who faces the music in that event?
You won’t take long to figure out that the Buyers’ fraternity feels the pinch. With off-the-plan properties, the difficulty is not restricted to completion dates. The prevailing market situation at the time you are handed over the property also counts a great deal and it is not hard to understand why.
Positive cash flow (possible demerit)
Low-income earners cannot certainly find it easy to pay the mortgage out of their own pocket. This is one reason (and a very valid reason at that) why they are inclined to create a positive cash flow for themselves. The idea is simple. They buy a property, rent it out, and use the rent money to pay off their mortgage.
In a situation where “rent fetched” exceeds “mortgage repayment”, positive cash flow arrives on the scene. This cash flow is enough to see them through the rental yield dilemma but there is a definite caveat. The concept of capital growth suffers, and with this, the dream of a long-term growth gets eroded.
Low-income earners should ideally keep away from investing in student accommodations. While these are certainly lucrative as investments, they come with a risk: The range of the target audience is constricting. What is good as accommodation for students certainly cannot be good for next-home buyers or owner-occupiers? So when you take a major chunk of property investors out of the equation you essentially leave yourself handicapped, don’t you?