The difference between property investors and speculators

A lot of people purchase property as part of an investment portfolio, aiming to create wealth over a long period through rental income and potential eventual sale. Some investors, however, intend to speculate on short-term gains made by quickly buying and selling property.

What’s the difference, though, between a speculator and an investor?

Investopia calls it the difference in the level of risk being undertaken, noting that for investors the risks are more calculated. “High-risk speculation is typically akin to gambling,” says Joseph Nguyen, “whereas lower-risk investing uses a basis of fundamentals and analysis.”

Cate Bakos agrees those who prefer quick turnaround and short term gains are taking higher risks than investors who are in it for the long term. However, she also notes that people simply have different strategies they favour and that “there is no right or wrong answer, provided the investor achieves a suitable outcome”.  

The view from The Balance describes investors as those who only buy stock or property that is trading less than its intrinsic value, while speculators buy up when the stock or property is experiencing high volume turnover (rather than its underlying value), particularly in a bull market. The profit potential when buying low and selling high at the crest of the boom comes at the risk of mistiming the sale point. If an investor can’t afford the loss of investment funds if the timing is botched, The Balance recommends taking the steadier approach.

Another view of the investor versus speculator divide comes from CPS Property, which says “the difference is usually in the timing” – not in reference to when the market prices are right, but when you the investor are best situated to take those short term risks in exchange for potentially higher gain. Essentially, are you in a situation to manage if the risk doesn’t pay off and you experience a significant loss?

The steadier strategy of researching the fundamentals and investing for the long term reduces the risks and encourages long-term gain and return; but the higher risks of short-term speculation can yield profitable results. But the two strategies are not alike and require careful consideration, especially before deciding to take the higher risks.