Property investment funds have made property investments into a bit of a popular sport. Today, anyone can invest their money into a private equity fund – but how do you figure out which fund is worth your time and money?
“In the past few years, the central change in the property market has been the creation of property investment funds. In practise, this means that smaller private investors now have a chance to invest in property, without having to buy and let a studio apartment in Kruununhaka. And since it’s possible to get started with small investments, investing in property through a fund has practically become a popular sport.
The conditions over the past few years have been optimal for the rise of property investment funds: low interest rates, availability of funding, the consolidation of jobs into growth centres and the resulting movement of labour have all encouraged this. What’s more, renting has become more common and as a result, more socially acceptable.
So what should a property investor know?
Today, people are valued by where they live, and not by whether they own or rent their homes.
Rental properties are being constructed at prime locations, whereas previously they were being put up wherever builders didn’t want to construct owner-occupancy buildings. Today, location is just as important for tenants as for those looking to buy. In the Helsinki region, rental buildings have been planned for some truly great spots, including the likes of Jätkäsaari, Kalasatama and Kruunuvuorenranta.
With the completion of large infrastructure projects such as Länsimetro and Kehärata, Espoo and Vantaa are now also planning attractive living areas around the new stations. The prices of apartments has kept rising, and in addition to rising returns on rents, property values have also gone up significantly.
But you cannot trust property values to keep climbing forever.
I’m not saying that the golden period of property investing is over, but we are seeing something of the crest of the wave. Those who have bought property or apartments in weaker locations or at a higher cost may have difficulties increasing the value of their investment – and it may very well go the other way.
The funds and investors who’ll succeed are the ones that are looking at least a decade ahead. The central question is without a doubt whether the location of your investment property is good in the long run. And although an area might not be popular right now, it’s important to understand which areas are up and coming, and which are on their way out.
So who won’t make it? Those who get caught up in the chase.
If an investor is doing too well, the ability to make critical decisions can be impaired. These investors get caught in the chase of acquiring new property, even if they have to force it. They’re ready to bargain on profitability and make purchases without thinking it through thoroughly. Getting caught up is a key trend in the industry, and one I caution strongly against. It requires massive amounts of restraint to not make dumb decisions when feeling the adrenaline-spike of the chase.
Property investing requires cool-headed bravery, not thrill-seeking. And bravery is born from being able to critically and dispassionately assess the future. Imagine how you would feel now if, ten or fifteen years ago, you’d had the foresight to invest in building sites surrounding the new metro or Kehärata stations? You’d probably have a big smile on your face.
The property investment companies I trust are those who can handle the entire lifecycle of my investment effectively.
They know how to value location, design the right types of buildings and apartments, and construct cost-effectively. They also know how to negotiate contractor deals, handle the letting process as well as tenant management effectively. That’s the company I’d trust my money with.”
Eero Saastamoinen is a Premico advisor, the vice-chairman of A-kruunu Oy and member of the board for Asuntosäätiön Asumisoikeus Oy. His mantra is that the property business isn't rocket science, but "simply taking care of things meticulously and with a good dose of common sense."