Investing in property without owning one

You can invest in a property without owning it. This is explained in this article. You can invest in a REIT (real estate investment trust).

http://www.todayonline.com/…/investing-property-without-own…

However, many people found that they make a bigger gain by investing in a property.

Why is this the case?

When they buy a property, they are taking a loan, say 80% of the purchase price of the property. They only put in a down payment of 20%. This is called “leverage”, i.e. investing with borrowed money.

Leverge is good, if the invested asset appreciate. If it goes up 10%, a leverage of 5 times give you a profit of 50%. This is what happened when the property market goes up and up.

But the property market can also go down. When it goes down 10%, your leverage of 5 times means that you lose 50%. Are you able to top up this 50%? If you can’t, the bank will sell off your property at a depressed price. You will lose all of the money that you invested. The bank may sue you for the excess, and make you bankrupt.

Over the past decades, many investors have been burnt during the down cycles of the property market. They have lost all of their properties and gone bankrupt. You do not hear about these cases, because they are not publicised.

You only hear about the millions that many people make on their property investments, right?

If you invest in REIT, it is all right. You are not investing with leverage. If the price fall 20%, you still have 80% in your investment. You can wait for the price to recover. It always does. Maybe, you have to wait one, two or there years. Be patient.

Remember this. The property market is extremely high. The risk of a falling market is high. It can cause you to be bankrupt if you invest with borrowed money, including a loan on your property. Be careful.

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