In the current economic climate, many Investors and Financial Planners are seeking alternatives to volatile stock markets and dismal deposit accounts in an effort to boost portfolio income without dramatically altering overall risk profile. One such are of interest for the Income Investor is strategic property, as high-yield property assets can be acquired from distressed sellers with deep discounts to market value, enhancing income returns and reducing capital risk.
There are number of markets around the world where, in the tail end of the global financial crisis, income-generating property assets can be acquired from financial institutions keen to rid their balance sheets of illiquid assets in order to borrow freely in money markets. Indeed, holding defaulted loans or repossessed properties can limit the amount of borrowing a financial institution can do, and as such many are prepared to let these asset go at rock-bottom prices.
The most obvious market for Investor to consider is the US property market, where the bulk of sub-prime mortgage defaults have now been processed and foreclosed and a glut of property sits empty and unsold. At the same time, rental yield in some areas can exceed 35% per annum, and whilst the quality of the underlying property assets can in many cases be questionable at best, such high yields make for superb long-term income investments for those Investors capable of withstanding the relative illiquidity of real estate.
Another option for the Investor seeking to benefit from this transfer of wealth is to acquire said properties with the aim of improving the asset quality through refurbishment and disposing of the property very quickly on the open market. This strategy allows Investors to capture the discount as a liquid capital gain, and where the end-users are able to access reasonable home loans, properties can often be bought, refurbished and sold within 30 days, and if the original discount was 50% to market value, then Investors can easily double their money on a monthly or bi-monthly basis, and utilise profits to expand into further properties and even greater gains.
This opportunity is unique, and is only relevant in a distressed market where there is a plethora of homes to buy at good discounts, and plenty of future homeowners looking to get back on the property ladder, and of course where the new owner can source a mortgage. For those Investors seeking a longer terms and perhaps more hands off income investment, they might consider buying individual rental properties. The same discounts apply, and a local management company can take care of tenant and property management. There are also some more structured fund-like property investments where investors can buy a stake in an existing property portfolio that is already generating income, and these kinds of products remove the risks associated with direct ownership of real estate assets based thousands of miles away.
In summary, strategic property investments offer investors the opportunity to collect market-beating income, and whilst not suitable for those who might require instant access to their funds, high yielding assets of this nature will often generate an income 4 or 5 times greater than the majority of financial products currently on offer.