Investment property: income, growth and choices

Funding's learning centre uses the term investment property to mean real estate bought mainly to generate income or profit through rent, appreciation, or both. It says an owner does not typically use the property as a primary home.

The learning centre groups investment properties into residential, commercial, industrial and mixed-use categories. In the residential group it puts houses for a single family, duplexes, apartments and buildings with several units. Commercial examples it gives include office buildings, shops and hotels. Industrial examples include warehouses, manufacturing plants and distribution centres. Mixed-use properties combine more than one of these uses.

Funding's learning centre describes rental income as providing steady cash flow that can add to an investor's financial portfolio. It says appreciation over time can produce a capital gain when the property is sold.

The same learning centre lists diversification as another feature. It says real estate can spread an investment portfolio across asset classes and can act as a hedge against inflation and market volatility. It describes long-term ownership as a possible contributor to wealth building through rent and appreciation.

The learning centre also refers to rental yield and capital growth, along with financing and management. It says an owner can manage a property or use a professional service.

ING's guide suggests clarifying investment goals and a strategy before purchase. It describes aiming for long-term capital growth or a retirement nest egg, or a renovation for quick profit, or rental income as different approaches that can point to different properties.

The same guide suggests looking in areas with rental demand and good access to transport, schools, universities and business centres. It says an area with shops, cafes, infrastructure and transport improvements, along with people moving in, might have growth potential.

ING's guide also describes matching a property to the tenants an owner hopes to attract. It gives examples: a family may want a garden, extra bedrooms and nearby schools, while young professionals may prefer a terrace, and students may seek a secure apartment.

The guide lists features with broad tenant appeal, such as an extra bathroom, a laundry inside the home, a balcony, a lockable garage, air-conditioning and built-in cupboards. It notes that houses have tended to see more capital growth, while apartments have tended to offer higher rental yield, and that lower-density apartment blocks generally do better on capital growth and have lower overheads than high-rise apartments, unless there is a magnificent view.

Funding's learning centre names high entry costs, management responsibilities, market risk, lower liquidity and vacancy risk as possible downsides. It says purchasing an investment property can require substantial capital for a deposit. Initial repairs may add to that.

The same learning centre describes management as potentially time-consuming, with tenant issues and maintenance to handle. It says rental demand can move with market conditions and local trends, along with economic factors, and that property can be less liquid than other investments. Periods of vacancy can mean lost rent and financial strain.