Income investing is a widely used strategy; indeed most investment portfolios – large and small – will hold at least some income investments. Historically, Investors and Financial Planners have relied almost exclusively on financial markets to access regular income streams; either through share dividends, cash held in high-interest deposit accounts, bonds of varying types or other nice income generators such as Permanent Income Bearing Shares (PIBS).
Today we find that more and more Investors and Advisors are seeking out alternatives to money-market investments as volatility, economic uncertainty and dismal interest rates converge to limit the income producing potential of traditional financial instruments. Many in fact are refocusing on that old favourite; property. Since records began property has been used as an alternative investment asset to generate income and cash in on capital gains driven by rising demand for good quality properties from an expanding global and local population.
The basic buy to let formula employed by so many Investors relies on the availability of mortgage finance to fund acquisitions, whilst rental payments from tenants cover the servicing of the debt and hopefully extra income on top. Over time the debt is repaid (or then property rises in value) and capital gains are cashed in when the property is sold. Many Investors however plan to keep hold of their debt free investment properties and simply live off the rental income.
In today’s market, there are some tremendous deals on investment properties in various global regions, as distressed sellers offer assets at a discount to market value to encourage a quick sale. This present a further opportunity for Investors as the discount ultimately counts as a profit when the property is refinanced or sold. Indeed, the savviest of Investors seek out regions where assets can be acquired with very deep discounts and sell the properties very quickly on the open markets in order to simply take the purchase discount as a liquid capital gain. This strategic approach to property investing works just like other income investments, in that properties can be acquired and resold in very short periods of time, and the original capital and profit rolled over into more acquisitions providing a consistent stream of capital gains, but often I much greater quantity then for the Investor who chose to buy and hold a single property.
Post sub-prime mortgage crisis and resultant financial collapse, there are a number of property markets where Investors can access their choice of investment properties very cheaply and where the ultimate buyers are able to find mortgages. This being the case, then this strategy can be put to work in a big way. Opportunities like this exist in a number of US States where banks are keen to rid their balance sheets of foreclosed properties, and are prepared to accept massive reductions against valuations, and where recapitalised Lender are starting to offer reasonable and sustainable home loans to low income families, often at rates as low as 3% fixed for 30 years. Another interesting opportunity is in Brazil, where the government provide guaranteed mortgages to low income families in order that they move out of dangerous favelas and into newly built, approved housing developments, in this case, Investors can provide the construction capital by purchasing a social housing unit pre-construction at a discount, and on completion the property is sold with a mortgage to a local buyer, and the Investor taking up to 20% profit over the course of just 12 months.
Whilst ample opportunities exist for cash-rich Investors to capitalise on current market conditions, it is vital to find a capable Partner with a track record of identifying and delivering such opportunities, and where it is possible to undertake or view sufficient due diligence as to be sure of the risks associated with investing in physical property assets.