Property Investment: Definition, Types, Risks, Benefits and Factors Affecting Prices

Definition of Investment Property

Many people choose to invest in property because they think it will make a profit. Its that true? The price, which regularly rises, also offers promising profit opportunities. However, it is better to get complete information before making a decision to invest in property. 

We will provide a summary of information about this property investment.

Definition of Property Investment

The act of buying a property with the intention of profiting from it at a later date through resale, rental income, or both is known as property investment. Therefore, it is not acquired as the buyer's primary residence.

Individuals, institutions and commercial entities can all own investment property. Long term or short term investments both can be made in investment property.

Second home is another name for property investment. While the second house is for investment, the first house is for living. However, not everyone uses it that way. Also, it is feasible to purchase a second property, such as a villa in a popular tourist location, to use as a vacation residence.

In other words, this is not an investment in property. but for personal gain. Revenue does not come from assets.

Types of Property Investment

Knowing the different types of property investment will help you choose the best product for your investment needs if you are interested in real property.

There are three different types of properties available for investment. Here are some of the categories.

1. Residential

One way for investors to generate additional income from their property investment is by renting out their home. An investor will buy a house or other real estate and rent it out to someone else. He would then collect the monthly rent for the house.

There are other types of property that are often used, such as houses, flats, and condominiums.

2. Commercial 

Purchases of commercial real estate made with the intention of making money do not always have to be of the residential type.

Some investors purchase commercial property expressly for their business. These properties are obviously expensive to maintain and upgrade as they are used for commercial reasons. Money from sales or rent collected, however, may pay for expenses incurred. Apartments in busy areas and retail spaces are some examples of these buildings.

3. Mix

This property is of a type that can be used for both residential and commercial purposes at the same time.

A shop house is the most typical example of this type of property. The bottom is usually used for commercial purposes such as restaurants, shops, and so on. The upper level is usually occupied by company owners or rented out as boarding houses.

Profits and Risks of Property Investment

Property investment is becoming increasingly attractive. Besides the very lucrative profits, many investors invest in the real estate sector to protect their assets from rising inflation.

This is another factor driving competition between developers to create properties. Vertical housing, often known as apartments, houses, and lots, are the three most common types of real estate investment.

The fact that no investment is perfect should be emphasized. Everything has advantages and disadvantages.

Before making an investment, you must get information and knowledge about the following things to get benefits and reduce property hazards.

1. Property Investment Advantages

Real asset investments, or investments in physical goods, including investment property. The trend of land or property investment lately is very big.

This can happen when the first rarity appears. Imagine the amount of available land will not increase. Meanwhile, the population continues to grow.

This implies that there will be greater demand than supply for land and property, which will lead to higher prices. These are some of the factors that drive people to invest in real estate.

The following are the advantages of property investment that you should know:

1. Results Are Often Profitable

In property investing, the notion of scarcity plays an important role. Therefore, if you are wise and choose a decent location, you can claim that the return on investment in property is always positive.

You can get some benefits, especially if the investment is made in the long term. Therefore, these investments are usually made for long-term goals. 

When used in the short term, it can. In general, the following example shows how to do this:

• Repair buildings and then sell them for more money.
• Get land to develop, then sell it for more money.

However, you should be careful when selecting strategic sites and avoid selecting locations that will prove difficult to sell for whatever reason.

2. Passive Income Potential

Buying property has the potential to generate passive income for you. For example, you might choose to rent or lease it while you are still working. Because land and buildings are not for sale, you can still get passive income while owning assets in this situation.

So you could say that investing in property has two advantages: first, it will only increase in value, and second, if you don't sell it, you can get passive income.

3. Can Be Collateral

If you can buy a house and use it as collateral for a loan to buy another house. You can make a profit because the profit cycle is almost the same. Because land and property are usually high-value assets, you should also anticipate a sizable loan amount.

4. Resist the Threat of Inflation.

In fact, buying a house in the past was to fulfill basic human needs. However, there has been a shift in interest, and currently owning property is one way to prevent inflation from eroding those investments. In other words, the owner believes that when he buys a property, the value of his investment will not decrease like the value of a currency whose purchasing power decreases due to inflation.

2. Property Investment Risk

Starting a real estate business has many benefits, but there are also dangers. You can be forced to defend property indefinitely if you don't make a profit or the environment doesn't support you.

In fact, the amount of risk you are willing to take determines whether you invest in property or other financial assets. Before you decide to invest, pay attention to the following property investment dangers:

1. Maintenance Burden (Management Burden)

Property owners or investors cannot expect their investment to provide ever-increasing returns unless they pay attention to the condition of the property.

To increase his rental income, he also has to pay extra to keep the building in good condition.

2. High Capital Investment (High Capital Investment)

The second way to describe an investment in property is as a capital-intensive investment. Since the return on property investment is generally higher, the more capital is invested in it.

3. Accessibility to Capital

Prices for commercial properties reflect the forces of supply and demand. Local market characteristics and trends that influence the supply and demand for property are taken into account when pricing properties.

Affordability is the key difference between property and equity valuation. Since the stock purchase was made in cash, affordability was not a concern. In contrast, property transactions usually involve leveraged purchases financed by banks.

4. Expensive Transactions

Compared to investing in other sectors, purchasing real estate has a higher cost. Taxes such as PPH (5% charged to sellers) and BPHTB (5% charged to buyers) are used to cover these costs.

5. Acquisition that takes time (Time Consuming Acquisition)

Several weeks or months may pass before you can buy the property you want.

The illiquid nature of the property (lack of liquidity) also explains this. Even one US property specialist suggests looking at 100 different properties before selecting the top three to secure the desired property.

6. Limited Information (Lack of Knowledge)

Limited information due to focus on local properties. Though house prices will not always be the same from one location to another. This forces investors to be vigilant and survey the areas they are interested in.

7. Building Depreciation

Even though the value of investment properties based on land and buildings increases year on year as a result of increasing land prices due to scarcity, the buildings on these properties may have an age.

This is not the same as the land of longevity, or the land of the immortals. Buildings can theoretically be 20, 30, or 40 years old, depending on their quality, sturdiness, and usability (as a result of their construction).

8. Destroyed in the Event of a Natural Disaster

Investment property has the same risk of damage to land and buildings as other assets due to natural disasters, including earthquakes, landslides, tsunamis, and others.

However, insurance can actually overcome this; therefore, in practical terms, catastrophic damage can be avoided at the additional cost of paying insurance premiums.

You can do your research and choose wisely when investing in property. Remember that the real estate industry is one that usually pays off, especially if you handle your company wisely.

Building a business is the same level of complexity whether it involves property or any other type of business. Simply put, there are clearly different strategies used to grow a business. especially when it comes to financial accounting and data collection.

Factors Influencing Property Investment

It can be said that investing in a business or property is a never-ending endeavor. But it turns out that this investment requires an element of X to be successful. There are aspects that affect the investment property itself, influencing it to offer the most returns and advantages. 

Can you lose money when investing in property? Actually, it might just happen. The following are some important variables to consider when investing in property:

Property Location

Location is the element that makes your investment in property so attractive. Choose a place that is visible and easy to approach. It has to do with surveillance. If you previously purchased unsupervised land, give it to someone you can rely on.

Pay attention to road access for strategic locations. Never invest in a property or house with poor road access because it will not grow. The air source is also important because it is a basic need. Also, make sure the area is not prone to flooding. Coming directly to the location is the best way to check it.

Before determining the ideal location for property investment, it is important to understand the qualities of an ideal location for investment, including:

• Good and Modern Infrastructure

Please note that having adequate and modern infrastructure is very important to incorporate a well-integrated area for investment property.

Of course, this is done to improve the quality of life and provide comfort for local residents.

Because of the many facilities available, it's no wonder that many people are interested in moving here, and developers are eager to build their projects in this area.

Physical infrastructure consists of wide roads, neatly arranged footpaths, easy toll access to various locations, and so on.

• Adequate Public Facilities

The presence of suitable public facilities is the next quality of the area which makes it on the list of best places to invest in property.

These include corporate and office hubs, educational hubs, medical hubs, tourist sites and hubs for public transportation.

The easier it is for people to meet their daily needs, the more complete the public facilities are offered.

It's no wonder that houses that are close to the community have many amenities, so the price offered is of course higher.

• It is a Sunrise Property Area

Maybe you are already familiar with the term "sunrise property" if you have trouble investing in real estate.

Yes, Sunrise Property is a residential neighborhood with significant investment potential under development.

A location can be called a sunrise property if land and house prices rise quickly and steadily there.

Typically, the sunrise property has the following characteristics:

- Stable area with respectable and excellent infrastructure

- Massive infrastructure development

- This is a buffer zone in the nation's capital.

Property Type

The results of investing in property are more long-term, which is something to keep in mind. Even if we choose short-term property investment, this is possible as long as you have a large enough amount of money. Usually, obtaining funds involves a loan application. As a result, effects take time to manifest. This investment will be profitable if taken seriously!

We have access to a wide range of property investment opportunities. In order to avoid too much trouble and to learn before developing further in the future, you should choose one of the following five types:

• Residential Investment

Everyone needs a place to call home. You know that there are many forms of houses. It's not just houses or flats that look tall. But there are also boarding houses or houses for rent on a smaller scale. There was undoubtedly a need for a place to live, and the results did not disappoint. The scale can be chosen by investors based on their capacity.

Renting or selling property are two options for investors. Location is an important factor. If the property is located in a prime location, the business will be very successful. It doesn't have to be downtown to be successful; as long as the transportation network is complete. Surrounding facilities and infrastructure are also important.

• Business Land Investment

People are becoming more and more interested in starting their own business today. There is also the prospect of investment properties specifically designed for businesses as the creative industry grows. Similar to housing, location, amenities and surrounding infrastructure are important elements that cannot be overlooked.

You know, there are many types of commercial properties. The first, of course, is renting or buying and selling retail properties, office buildings and kiosks. Wherever this structure is required. however, from the suburbs, markets, and city core. Parking lots can now be built on vacant properties. especially if it's in the heart of a busy office. Plus, some people rent space for warehouses.

• Property Investment for Entertainment

Since the first vacation rental, the company has grown rapidly. Hotels, villas, cottages, and so on are examples. However, if we imagine this huge company, almost everyone will work hard to make it happen. Therefore, why not start small?

The term "healing" is currently very popular among the MZ generation. Cheap vacations are becoming an increasingly popular idea for the recovery process. More and more affordable lodging options, known as homestays, are being offered. It has even become commonplace to let visitors stay in empty rooms at home. This can be the initial stage of your property investment.

• Property Equity Crowdfunding

This business has experienced tremendous growth since the first vacation rentals. Examples include hotels, mansions, cottages, and so on. But if we think it's big, practically everyone will try hard to build their business. So why not start small?

The current MZ generation uses the word "healing" a lot. Cheap vacations are gaining popularity as a remedy for the healing process. Homestay, a type of cheap lodging, is increasingly widespread. Even letting guests stay in an empty room at home has become a habit. This could be the first phase of your investment in real estate.

• Property Shares

Property shares do not require us to own any property, unlike property equity crowdfunding. adding that we invest in shares of companies specializing in real estate development. Before starting to buy shares, make sure a securities account has been opened. Never forget to monitor the share price of the Indonesia Stock Exchange.

Property Prices

The price below the Selling Value of Taxable Objects (NJOP) for land is actually the best for buying land. The fair price is the same as the NJOP price. Take a survey that compares nearby property prices to find the best deals. As a side note, prices are usually higher in nicer locations.

One of the best and safest investment vehicles is property. This not only offers multiple advantages in the form of dividends and capital gains, but also has an anti-inflation effect. Hence the result is more desirable. The money is safe and will continue to grow.

It is important to watch inflation increase, especially in the current climate. Many countries experience high inflation rates as a result of global uncertainty. Furthermore, after a period of relatively low inflation in the United States, the country experienced the largest inflation in the last 40 years, amounting to 8,5%. Luckily, Indonesia's inflation rate in July 2022, as reported by the Central Statistics Agency, was 4,94 per year (yoy), much lower than other countries.

High inflation had a negative impact on the economy, resulting in reduced market demand due to low consumer purchasing power and an uncompetitive product market. Proper investment tools are needed in this scenario to prevent further loss in value for money. Additionally, properties may be suitable substitutes.

Property Condition

When investing, also consider the condition of the property or land. For assistance with inspections, talk to a notary or land deed official. Alternatively, confirm that certification is complete if the property is residential. Also verify local government plans. The city planning office in your area is a good source of information.

How Property Investment Works

Many people are vying for investment for their later years when they are young. The last few years have seen a rise in the popularity of property investment. There are many types of real estate investments, including buying a house or a car. Housing is the most common type of real estate investment because it is considered more profitable in the long term. For new investors, the most thrilling thing is achieving their first home purchase. You have to set the ideal approach to carry out your goals if you want to achieve the results you want.

You shouldn't get into real estate investing if you are a beginner because there are lots of things you need to learn first. The fact that buying a house is not a simple process is one of the things to be aware of before doing it. Sometimes there are several stages that must be completed. If you decide to use a mortgage as your method of payment, pay close attention and make sure all requirements are met before applying.

Stages of Property Investment

Here are six steps to get you started and dispel any doubts you may have about investing in property.

1. Financial Checks

You will find out how much money is available to invest from this. But if it turns out differently than you expected, hold off on concluding that you can't afford to invest. It's okay to take out a loan to invest. Don't be afraid to take out loans to invest as long as you already have a job with a position and a high enough salary or a reliable business.

But keep in mind that only additional investment funds are allowed under a loan. Avoid forcing yourself to take a loan if the amount is far greater than your investment savings.

2. Set Goals

To start investing in property, you must decide what goals you want to pursue, and this is the most important step. Setting a deadline for when your investment should reach that goal is the next crucial step.

Because property is often a popular investment among those looking to protect their financial future. However, timing without paying attention. As a result, unexpected results occur, and regrets over unprofitable property investments arise. However, the second view reveals that mistakes are the result of poor time management and attention management.

3. Understanding the Risks

Risk can be seen as an unwanted fight that results in a loss. Understanding the dangers can also help you decide on your next course of action and make an assessment when you want to invest in property.

And once again, when you have made the decision to invest, you must be prepared for danger.

4. Set a Budget for Investment

To ensure that you can balance your income and expenses while making investments, you must develop a budget. Because you will be able to track your expenses and the return on your future investment at that time.

Before you even start looking for a home, be sure to get it organized.

5. Create a Purchase Plan

What would the ideal buying plan look like? You have to think about several circumstances so that the property you buy is in accordance with the appropriate purchase plan. From determining investment strategies, property criteria profiles, conducting surveys, and so on.

6. Stay Focused

Stay focused to maintain your attention. Buying real estate is a purely emotional business choice.

Starting something new with so many responsibilities can be challenging. But keep trying. Imagine being able to sit back, feel satisfied, comfortable, and even happy that you bought a property that seems to have improved significantly over 10 years if you buy the right property right away. While some of your co-workers and others may be busy, start investing.

Property Purchase Procedure

Want to buy a house? It goes without saying that you must understand the procedures and processes involved in purchasing property in Indonesia apart from setting aside funds or creating a budget. In order for the process to go smoothly and avoid big problems, it is important to understand the property buying procedure. If you are not a layman, the explanation below can help you understand the entire property buying procedure in Indonesia.

1. Find Properties

Of course, determining the type of property you want is an important step before making a purchase.

You can hunt for properties in various ways, including through advertisements in the media, especially on property buying and selling websites; by going to property fairs; or by hiring a property agent to find a house or apartment that suits your preferences.

2. Find a Reputable Property Agent

If you choose to buy your home through an agent, look for experienced property buyers.

Meeting in person and asking the necessary questions is the best approach to assessing the quality of an agent.

You can research listings and past sales made by agents to see if they are comparable to the property you are currently looking to buy.

Of course, licensed real estate agents are profitable. The agent's compatibility with you, however, is the most important factor to consider.

This is important because the home buying process can drag on, so you need to be sure that your real estate agent is reliable and fun to work with.

3. Property Negotiations

Negotiating with the seller is the next stage in the property buying process after you find a home that suits your wants and preferences.

Individuals, developers, or developers may all be included.

You can discuss the timeframe for refunding the down payment, asking the seller for a discount, and other issues.

4. Give a Booking Fee

You can put a certain amount of money as a receipt or booking fee if you and the seller have agreed on the purchase price for the property.

Due to size differences, the cost of this order is different from the down payment. The booking fee is a signal that you are committed to buying the advertised property.

Not all vendors have to pay an ordering fee. Ask the seller if this booking fee can be included in the selling price of the property if you need to pay a deposit.

Order costs are non-binding even if shown as completed. You can cancel the property deal if you find another property you like better or decide not to buy.

It's just that there's a chance you won't get your payment back.

5. Applying for KPR and KPA

If you decide to pay for a property with credit, you can start by applying for a Home Ownership Credit (KPR) or Apartment Ownership Credit to the bank.

The credit application process collects the necessary documents, such as application forms, payslips, or other proof of income, and then analyzes or evaluates your credit status to determine the maximum loan amount and time period that can be approved.

6. Advance payment

When buying a property with a mortgage system or with cash, a down payment is required.

Developers and private sellers alike often require a down payment to secure the purchase of your desired home.

Usually, 20% to 30% of the total loan amount due will be repaid.

Developers usually expect the down payment to be made two to three weeks after receipt of receipt.

To provide certainty and certainty regarding the time of payment from the bank concerned, it is best if the DP is paid after the mortgage process with the bank is complete.

7. Juan Belii contract

Contract for sale and purchase of property transfers ownership of buildings and land.

In other words, with an agreed price imbalance, the seller officially transfers the land and/or building to you as the buyer.

Sellers and buyers will draw up a Sale and Purchase Deed (AJB) and/or a letter of credit agreement for the mortgage client as part of the property sale and purchase agreement process.

If you decide to pay cash, you can immediately pay off the balance you owe the vendor.

The lending bank will make payments to the mortgage borrower.

In order to legally protect sellers, buyers and banks, property sale and purchase agreements must be signed in front of a notary or other land deed making official.

How to Manage Property

Selling residential property including houses, apartments, buildings and other real estate generates income in the property company. Due to the rising cost of land and an increasing number of people needing a place to live, the real estate industry is growing in popularity and demand.

However, due to the rapid expansion of the property industry, there are many competing companies that you must leave behind. Therefore, you have to try harder to manage your property business.

1. Do your research first

The sale of residential properties, such as houses, apartments, buildings, and other properties, generates money for real estate companies. The demand for and popularity of property is growing as a result of rising land prices and an increasing number of people needing a place to live.

However, you will have to leave many rival businesses due to the rapid expansion of the property industry. As a result, operating your property company requires more work.

2. Start Selling Your Own Property

The second tip for managing the property business is to cut losses as much as possible. If you own property, you can raise money by selling it. This property could be a piece of land, a guest house in your home, the use of your garage or yard as a commercial space, etc.

3. Understand Applicable Law

The next step is to design the laws that will apply to your property company. You have to realize that every country is governed by a certain set of laws.

Therefore, to legalize land documents for the property you are selling, hire someone who understands the law, such as a lawyer.

4. Take High-Value Properties

Many new entrepreneurs are "in the dark" about buying properties that they will later sell because so many people want to set up real estate companies.

Due to carelessness in product selection, there have been instances of failure of real estate companies. They often succumb to the allure of "cheap" real estate prices without considering the state of the property.

On the other hand, you have to seize properties at low prices that are offered in useful and profitable positions. Recognize the potential that is around you.

5. Have Your Own Website

Having your own website online is the last piece of advice for managing the ultimate property venture. The property business, as we all know, will always be around, but you still need to update it every once in a while to keep it current.

Many people want to buy property as an investment, even if it is sometimes far from where they currently live.

Of course, if you establish your own online presence, you can demonstrate that you are a legitimate real estate entrepreneur.

Also, by having your own website, you can reach a larger audience and make your products more visible.

Property Selling Strategy

The following are effective strategies for promoting or selling a property:

1. Periodic Property Promotion 

Products take effort to advertise them once in a while. Because potential buyers need pictures of your property items. Luxurious house, as an illustration. You can insert pictures that are generally in accordance with the ideas that will develop later. Consumer interest and desire for these goods will increase. However, this approach consumes a lot of time and money.

2. Utilizing Events

To attract potential customers and arouse their interest in your products, you can also organize your own unique exhibition about your products in big malls. Make the event design as attractive as possible so that your booth or event looks more attractive.

3. Rely on Direct Sales 

Direct selling is a strategy to deal directly with customers to sell them certain products and/or services. 

This procedure can be carried out away from the physical boundaries of the Business Partner's marketing network. Direct sales sellers usually make a living through fair sales commissions, incentives and membership fees.

Direct contact with buyers offers a number of advantages during the marketing process, particularly in terms of proximity to potential clients. 

In order to further increase consumer confidence and increase the likelihood that your product will be purchased immediately. 

This interpersonal interaction ability is what you need to pay attention to in direct selling so that potential customers feel warm, comfortable, and not awkward or stiff during the process towards closing.

4. Implementing Referral System

It can be claimed that referral system, also known as word of mouth system, is a very successful promotion strategy in getting new clients.

Typically, these systems come with a number of drive-related abnormalities. Consider a scenario where I run a business in the high-end housing industry. 

This strategy works well because people are more likely to trust promotions from friends or family members than from your own business. 

In addition, because we provide free advertising for high-end housing, our market will also be bigger among the high-end.

But you should also think about rewarding customers. Don't let the bonuses you give affect your ability to make money.

Your approach to rewarding customers with bonuses will determine everything. For example, offering household furniture bonuses if you buy a house in housing for a certain period of time.

5. Creating Ads

The single most important task that must be carried out by marketing personnel is the creation of advertisements, both for offline use such as banners, banners, local newspapers, advertising and for online use on the internet. 

You can use a strategy to sell real estate by using various kinds of advertisements as mentioned above. 

Lots of advertising and focus on the right market will most likely make you more confident about closing deals.

6. Collaborate with Notary and Banking Parties

Finally, as someone who needs help with a property appraisal, you have to work with a notary and a bank. 

Use a trusted Notary as your partner to help you ensure all legal requirements are met during the buying and selling transactions that you make. 

It is important for you to start working with banks to make it easier for your customers to receive payments in the form of mortgages.

This is an explanation of property investment. Hopefully you have a deep understanding of this investment and start your investment from now on.