There has been a lot of ‘landlord bashing’ lately and misinformation regarding property investment and property speculation.
These two activities, property investing and speculating in property, are often portrayed as the same thing i.e. having the same effect on the supply and demand of housing and, therefore, houses prices. However, they are two very different activities.
Investopedia defines investment property as “real estate property that has been purchased with the intention of earning a return on the investment, either through rental income, the future resale of the property or both.”
Speculation is defined as “the act of trading in an asset or conducting a financial transaction that has a significant risk of losing most or all of the initial outlay with the expectation of a substantial gain. With speculation, the risk of loss is more than offset by the possibility of huge gain, otherwise, there would be very little motivation to speculate.”
For me, the difference is mainly a question of timeframe.
I purchased my first investment property in Cambridge more than 20 years ago with the intention of renting it out long-term. I still own it today. The house is an investment for me, and it has been a good family home for many tenants during that time. I am a property investor.
Buying multiple apartments off-the-plans with $5000 deposits on each with the intent of on-selling them before completion to make a quick buck is property speculation.
Property investors provide an important and essential service in the New Zealand Real Estate market. According to Statistics New Zealand, private landlords or businesses provided 264,501 rental dwellings in 2001, compared with the 73,047 being provided by the Public sector.
Dis-incentivise private landlords too much and you’ve got a very serious housing problem, far worse than the one we already have today.
John Kenel, Assured