When you engage in financial transactions with an aim to turn a profit through anticipation of price movements then you are speculating. For instance, if you buy a house with the hopes of turning profit by selling within a short time then you are speculating. Speculators buy when prices are low and sell when high.
Real estate industry provides a good platform for speculations because more than not the property appreciates in value. However, before venturing into Real Estate speculation, there are a number of factors that you need to consider:
- Location and accessibility. Proximity to key amenities such as major highways, social amenities like hospitals, restaurants, schools amongst others significantly contributes to the price of the land.
Also, consider accessibility. Many real estate companies especially those dealing in land advertise properties that are kilometers away from the tarmac. Some are actually in the middle of nowhere meaning that the land will not have any immediate value for the purchaser. Buy property close to the tarmac, property you can access easily using different modes of transport.
- How sound is the property you are purchasing. Buying property that needs repairs could be costly as you have to add the repair costs onto the overall cost of the house thereby significantly reducing the profit margins.
- What value additions are there on the property? What value adds are there on the property including good roads, electricity, perimeter fencing, water amongst others. This is important for those who may want to build as they do not have to deal with the extra expense and hassle of servicing. Such property will immediately attract a higher resale value.
- Make some money by renting out the property before you sell it. Property bought for speculation can generate for you extra income as you wait to sell. However, take due care to minimize wear and tear associated with living on a property. One should always be careful to mitigate cases of reduction in property value.
- Know when to sell – when demand is high and supply is low then you can turn a quick profit.
- Buy off-plan and sell at full cost when the project completes. If you buy off-plan from credible developers, you buy at a lower price and sell at a profit later. Though it can be risky, with the upward trajectory of property prices it can be a good move for a speculator. Do your homework on the developer before investing your hard earned money. This is also important if you are going to take a mortgage or loan from a bank. A conveyancer will help you deal with any legal issues and ensure that the purchase process is above board.
If you do decide to take the plunge, always remember that speculation deals with calculated risk. A negative turn in the economy can lead to massive losses. Do not put all your eggs in one basket. Seek advice from experts before dabbling in real estate speculation.