Depending on your situation, you may want to see higher short term capital growth in your investment (i.e. your a rentvestor and want to leverage short term growth to fund the purchase of your own home) or longer term capital growth (you already own your home and are using property investing as a way to build security in your later years).
Different property types provide different opportunities, which means there is no one-size-fits-all approach to property investment. Here are the types of properties that suit first time investors and why:
Studio accommodation is a great option for both younger and older investors for two reasons. Firstly, its low entry cost makes it accessible to those younger investors who want to enter the market early and give themselves a headstart in building wealth, while its high yield potential and lack of required maintenance (usually) makes it a great option for older investors who want to add it as an extra asset. The potential for higher yields is a plus for both types of investors. For younger investors with less financial security, higher yields may mean they do not have to negatively gear their investment, which gives them stronger long term security as negative gearing is susceptible to changes in governmental policy. Higher yield also benefits older investors as they are not forced to sell/leverage equity to supplement their income.
Land is a great option for those younger first-time investors who may not have their home yet and want to one day build, or who are looking to build wealth in the long term by acknowledging that the land will see significant capital growth over a 20-30 year period rather than in a 3-5 year period.
Commercial real estate
Commercial properties are often suited for experienced investors. First time investors can go down this route but they are best to do so if they have previous experience in property investment and have a solid financial base beneath them. Why? There are many significant advantages to investing in commercial real estate, the biggest of which is the fact that your tenants often increase the value of the property by making their own renovations, they often pay insurance on the property, take good care of the property and your leases can run for years if not decades. However, while a residential home will rarely sit unoccupied for very long, finding tenants for commercial properties can be difficult and they are more susceptible to downturns in the economy in the short term (for instance, if your tenant goes out of business because of poor retail conditions in the country, rises in interest rates curbing spending etc.). This means you need to have the capital on which to lean if you see months of no yield from the investment.
Of course a standalone home is the most desirable form of property investment, for first time or experienced investors. This is because you are buying the property and, more importantly, the land on which it sits. Standalone homes are typically suited for those first time investors that have benefited from existing growth in their equity as well as experienced investors, which has often locked younger investors out of these opportunities. While changes in lending conditions and the economy can affect this norm, it is also possible to gain access to these investment types by investing with friends/family or business partners. Investing in property is essentially a business, and should be run as one, which means there is no reason you cannot ‘go into business’ with other investment partners to accelerate your investment growth by accessing higher performing properties faster.
Apartments are typically suited to younger first time investors due to their cheaper entry cost, low associated maintenance, low vacancy rates and relative liquidity as far as property is concerned. Older investors who want to see shorter capital growth or higher yields tend not to go down this route, as apartments do not see as high capital growth as standalone houses, while their yields are generally quite low (3-4 percent per annum).
Interstate investment properties
Just as apartments, student accommodation and land provide cheaper and faster access to the property market for younger first time investors, interstate investment can provide similar opportunities in markets that have lower average house prices but high yields, high capital growth and/or low vacancy rates. This is what has driven interest and interstate investment in Tasmanian properties, as investors in high density markets such as Melbourne and Sydney have identified opportunities in this state for strong short term capital growth.