The recent article "Homo Sweet Home!" posted here focussed on how LGBT folk need to pay particular attention to issues of partner protection and estate planning whether they are buying in their own or in joint names. These considerations are just as important when investing in property as when buying your home or your holiday villa. It is simply not prudent to sign on the dotted line and hope for the best. Rather, serious consideration should be given to relative contributions and what you would want to happen to the property if your circumstances were to change in a variety of ways. This is particularly important in Asia where the protection afforded to LGBT couples by civil partnerships or marriage is not yet available.
The concept of buying property for investment, rather than as a place to live, is nothing new and merits consideration in any diversified investment portfolio whichever community you hale from. The process of acquiring a home or an investment property in a given location is rather similar, but the factors you should consider may be radically different.
When looking for your main residence, for example, you are undoubtedly looking for an asset that will increase or at the very least hold its value, but other very personal considerations may be of equal or much greater importance:
- Is there an established LGBT community or is neighbourhood at least LGBT friendly and somewhere you would feel comfortable living?
- Is the home located conveniently for your place of work, the gym, the organic supermarket or somewhere to walk the dog?
- Does the style of the property reflect your personal tastes?
- Is there sufficient space for entertaining/accommodating your family and friends?
- How far will we need to travel to enjoy suitable LGBT entertainment and nightlife?
In short it is OK to get emotional about buying a home. In fact if you are too detached and only consider the financial aspects of the transaction you are unlikely to end up with the home of your dreams. So when buying a home or a leisure property get creative, brainstorm your priorities and work on drawing up a shortlist of desirable houses, apartments or tropical island villas – it can be great fun and the more you put into it the more likely you will be satisfied by your eventual purchase.
Getting over emotional about an investment property and hung up on 'lifestyle factors' however, can be a big mistake. Just like the financial assets you have selected, what you want most from your investment property is performance. The performance of property derives from its ability to generate rental income and capital appreciation.
Unlike with your home you are not restricted by location in the same way. You can consider different parts of your home city, different parts of your country or you can even invest in a different country. Indeed, Asian investors have been some of the most prolific property buyers in global markets for many years; something which shows no sign of abating.
The world is your real estate oyster and researching property abroad when you travel is a great opportunity of learning more about your destination as well as its property market.
When selecting a pure investment property you need to focus on the factors that are most likely to enhance the performance of the asset – after all you will not be living there!
At the fundamental level all asset prices, including property, are determined by the interaction of demand and supply and it can be instructive to consider these basic economic dynamics when looking at a particular property market. To take an example that is close to home, Hong Kong property prices have ratcheted up impressive gains over the last few years because of strong local and international demand and because supply of property is constrained by low levels of inventory and of course the availability of land. Whether or not this will continue is another matter and will no doubt be the focus of a future article.
The budget you and/or your partner have available will be a major consideration, as will your ability to borrow money in the form of a mortgage (a loan secured against a property).
Keep in mind performance at all times when considering the optimum location for your investment. Is it somewhere that people want to live, with great connectivity to centres of employment and entertainment? – This will impact on your ability to rent the property. Nothing kills performance like a property remaining empty. You will still be forking out for the costs but will not have the benefit of offsetting income.
Is the area you are considering on the up? To put it another way is some form of positive transformation underway, such as new transport infrastructure, the building of an imaginative new amenity (concert hall or art gallery) or does the district benefit from new shopping and better restaurants? Ideally try and get in well ahead of these changes and the chances are that property the area will appreciate over time.
Interestingly, surveys consistently show that areas that experience an influx of gay residents appreciate in value at above the average for a particular city. So in London, for example, check out for Lambeth and Southwark both central boroughs which have been attracting a disproportionately large gay population of late.
In the jurisdiction under consideration how transparent is pricing and the buying process in general? Is a particular property market well regulated and how rigorously are building standards enforced?
Are there local property taxes to consider and what taxes will be payable on the income generated and on any capital gain? Don’t forget inheritance taxes.
How expensive will the property be to maintain? Older properties may have plenty of charm (and maybe somewhere you and your partner would prefer to live) but can gobble up income very quickly in repairs and refurbishment costs. Properties should be equipped up to the standards expected by the local market. Obsessing about the window treatments and the soft furnishings is going to cost you time and money and will do very little to enhance performance of your asset – you may even put some people off, as tenants prefer a blank canvas which they can personalise.
Property investment is certainly not risk free and should, like every investments, be approached cautiously and be viewed as a long term commitment. Property prices and rents may rise over the longer term but will go through periods where they are flat or even fall. Mortgage interest rates can increase and your own circumstances can change.
Having said all this, a carefully selected and managed investment property can and should be cash flow positive, even after debt financing costs. Many property markets worldwide are low risk and have long term track records of steady capital appreciation and everything being equal this should continue. By asking the right questions and seeking the right advice an investment into bricks and mortar really could be as safe as houses.
LGBT Wealth is proud to be Asia's first specialist financial advisory firm focused on the LGBT Community. LGBT Wealth is designed to provide a safe, confidential place for LGBT individuals to discuss their financial situation and aspirations with advisers who not only understand their needs but have specialist knowledge in areas like partner protection, LGBT retirement and property purchase.
Nothing in this article or website constitutes an offer or solicitation of financial product advice and is not intended to constitute provision of investment, legal, tax, or other professional or financial advice. Such content therefore should not be relied upon for the making of any personal financial and investment decisions. Persons accessing this information are strongly encouraged to obtain appropriate professional advice before making any investment or financial decision.