Investing in property is a long term investment strategy. How much capital you have dictates the size of a buy to let mortgage available to you and ultimately what property you can afford.
Property development in the UK is currently in overdrive. There’s a lot of buys to let property popping up in the major cities, including Manchester, Liverpool and London that selling out fast.
20 things to know about before you invest in property
- Your capital is always at risk – no matter how good things seem, we’re only six months away from something drastic happening.
- ‘Diversify your portfolio. Diversifying is the golden rule of investment, and if you followed it with property investments, you’d be at a massive disadvantage.
- It takes ten years to build an empire – If you genuinely want to make money from investing in property, make sure you can play the long game.
- Real estate is like any other business – A lot of people think buying property is more similar to gambling than running a business. That couldn’t be further from the truth; like running any business, it requires work ethic, strategy and research.
- Property is not that profitable on its own – Property can undoubtedly make money; however, if you’re looking for fast cash, look elsewhere (like high-interest savings accounts).
- Property is not passive – Most people think with property investments, it’s hands-off unless you’re making renovations, but the reality is that it takes a lot of work. You can’t just buy and forget.
- There are two types of agents – Just like there’s good food and bad food, there’s good real estate agents and bad ones – do your research before hiring one. There are only three reasons to use an agent: they represent the seller, they’re cheaper than doing it yourself, or you don’t have time to do it yourself.
- Always consult a lawyer – When buying any property (even for your own home), always get legal advice from a solicitor first, even if you think everything is above board! They’ll know the laws better than you and be able to advise on any potential risks.
- Buying off-plan can be risky – It can seem like an easy way to get into property investment; however, there are many pitfalls to buying off-plan that mustn’t be ignored, including delivery dates not being met by six months banks changing finance terms after they’ve bought units etc. Always be aware completion dates can change.
- Always keep at least 20% of the purchase price in a savings account – You should see this as a safety net rather than a nest egg. If something goes wrong, you won’t have to sell everything immediately, and you’ll always have some money going spare.
- You can make money from a property without owning it – You don’t need to buy property to make big bucks from it; there are other ways, including investing in funds or even by lending your money! The best way is to support through ‘EIS’ equity investments schemes which allow you to get your investment back within seven years. Even if prices do fall, you’ll still make money on top of that.
- Always use an RICS surveyor – These people know what they’re doing and will give you peace of mind knowing you’re not wasting your money. The cost for this is negligible when you consider the potential losses if something goes wrong. It’s like with insurance; better safe than sorry.
- Don’t panic when prices fall – Despite what the media says, the property only falls in price very rarely (less than one per cent of years), and when it does drop, it can bounce back in no time at all.
- If you buy near the top end of the market, make sure there are plans to increase value – So many people lose out by buying into schemes that are already completed but then don’t have any more goals until they go under. Since these projects take so long to build, more often than not, they won’t finish until the market is undervalued.
- Do not buy a flat unless you know what to do – These are very different to houses and need unique regulations which you must follow or watch your investment fall into disrepair! If in doubt, ask a solicitor or RICS surveyor about this before buying.
- Be wary of long-term leases – Although it may seem like one way to make money from property, these can backfire if people stop paying rent. Furthermore, they’re costly, so it’s not worth taking a chance on long term leases until you have more experience in the business.
- Land banking is a great way to make quick cash – This involves buying land until there’s demand for housing in that area and then selling it to developers when the time is right. If you have enough money, this is an excellent option for making money quickly.
- Don’t buy into ‘freehold’ until you know what that means – There are two types of ownership: freehold and leasehold. Freehold is similar to owning a house, while leasehold is more like renting with an assigned end date where, after it has expired, the property reverts to the owner’s possession again. Be wary of buying freeholds in areas where there are lots of houses!
- If you think prices might go up soon, get in before your rival does – Although it sounds strange, this can make you great returns if done correctly; especially after things have been bad for quite a while. The best time to purchase property could be when there’s a lot of negative press about the market going down, but this might be a short-term blip.
- Be careful when buying ‘off plan’ – This has advantages, such as lower prices and building what you want from scratch. However, these schemes can come off severely quite easily if developers go bust or let deadlines slip by more than six months. When doing this, only put in a small amount that you’re prepared to lose!
- Did you know you can invest in property as a limited company? That’s right, have a registered office and get your company set up and do it through that; if it’s beneficial to you, you might be able to claim more tax deductible expenses.
Is property investment the right choice for you?
You want your investment profitable, but with property, this isn’t guaranteed.
- Some people see property as a guaranteed way to make money. In reality, it’s a risky business, property prices can quickly change, and if you don’t know what you’re doing 100%, it can fast go wrong – especially in this economic climate. Here are some things to consider:
- Do I have the time and commitment to look after my investment?
- Can I afford any potential losses? After all, it doesn’t matter how much money you’ve got if you lose everything buying into an evil scheme.
- Am I financially secure enough to live comfortably while having ‘spare’ cash towards my property purchases?
- Once you’ve considered these things and decided whether you’re prepared for such risk, nothing is stopping you. Just remember to do your research, choose carefully and go with what you think has the best chance of success.
How do I start my property portfolio?
– Buy an existing apartment/property and refurbish it to increase its rent or resell it for a profit. This is one of the more accessible types because you don’t have to deal with renovations which can be expensive and time-consuming while also depending on others for your success.
Investing in property isn’t easy, but there are plenty of ways to get started. Here are some popular options:
– Joint venture with other investors who can provide some capital/skills while taking care of the rest. Although this does take more effort than just buying something outright, it allows you to work with people towards a shared goal without having too much personal liability if things go wrong.
For some people, it’ll be better to buy something ready-made and try selling on at a profit, while others might want to invest their time in designing and building projects of their own. Either way, you go. Remember that success doesn’t come overnight – but if you do things right, you can make money doing what you love!
How much money do you need to invest in a rental property?
There’s no set answer to this question as it depends on what you want to do and your situation. To buy a house, the average person needs about £15,000 these days – but that doesn’t include solicitor fees or stamp duty which can be around 4-5% of the total value of the property. If you’d rather invest in a refurbishment business instead, it’ll probably cost between £20-50,000 depending on how much work you need to do for each project.
In general, terms though, if you want to access more complicated ways of investing such as joint ventures or setting up a limited company, expect to need at least £30-40k before even thinking about doing anything else. Although there are opportunities for people with less, this sort of money allows you to play it safer, avoiding any nasty surprises.
Is property investment a good long term investment?
There are many different options for property investments, but it’s essential to choose the right one for your needs.
In short, yes, but there are many other things to consider as well. For example, if you don’t want to work hard and put your capital at risk, then it’ll be tough for you to make any money – which means that if you’re not prepared to go through this process, then maybe the property isn’t the best choice of investment at the moment.
People looking to take advantage of rising prices (and good rental demand) will find themselves better off doing private deals where they can manage their time more easily without too much financial pressure. If, however, you do have plenty of cash or ready access to credit, then investing in buy-to-let properties will generate solid long term returns over time.
The best way to know if property investment is for you is to start small and see how things go – which might mean buying your place through a standard mortgage payment before thinking about anything else.
If you can work out how much time you’ll spend on each project, that will help you figure out what sort of budget is required to make any money.
Do your research before you invest in property.
It’s also vital that you do plenty of research before deciding how much risk you’re willing to take on when choosing projects or partners to work with. While it could be tempting to think that more significant returns equal more considerable risks, this isn’t usually the case because if someone asks for too much money upfront (or won’t let go once they’ve got it), then the investment may never pay off.
The main thing to remember is there’s no such thing as a get rich quick scheme when it comes to the property because, in most cases, you won’t be taking advantage of rising prices until the project has almost finished (if ever). However, if you work hard and choose your partners wisely, then this approach can help you make solid returns in the long run instead.
What does a property investor do?
Property investors buy and sell properties to make a financial gain. They typically buy when they think property values will rise and then sell when prices go up or recover after periods of falling.
Property investment is not guaranteed to make you money, though, so it’s crucial to pick your assets carefully and stick with what you think has the best chance of success. There are many different options for investors these days, but it’s essential to choose one that matches your goals and makes sense about your other investments.
What are real estate investment trusts?
This is a more straightforward, more hands-off approach to investing. These are companies specialising in property investments and are listed on the stock exchange. You invest in them, and they aim to offer a return on your investment.
Real estate investment trusts can be a great option when property investing.
Are property courses worth it?
It depends on your circumstance, what you want to do and which course you choose. Some online courses are worth what you pay for them can give you a good overview of the property market, but it can be challenging to know if they’ll suit your needs in the long run because most don’t come with guarantees.
There are also plenty of property courses that shouldn’t cost anything near their price tag – so in this case, it’s usually a good idea to steer clear in favour of more reasonable options. It’s possible to learn about property investment through books or by reading blogs instead, so it’s important not to pay over the odds when choosing where to get started.
The best way is probably to go ahead and buy one course to start with. Then if it works out, you can consider other options later on.
Steps for investing in property
There are three main steps involved when it comes to investing in property; firstly, buying an investment property or properties (or pre-existing homes), secondly letting them to tenants and finally selling the homes again once the time is right. This doesn’t happen overnight, though (unless you’re fortunate), so you must keep your eye on the big picture instead of getting over-excited
1 – Make sure you have enough cash ready before doing anything else
It might seem like a good idea to take advantage of rising prices by borrowing money from somewhere, but if interest rates go up or your tenants struggle to pay, you’ll potentially end up with a loss of money in the long run. That’s why it’s best to make sure you have enough cash ready before investing – this means having plenty of savings, getting a reasonable interest rate on your property and knowing how much renting will cost while making sure you can cover all of these ongoing expenses.
2 – Find out what type of investment suits you best
There are many different properties and tenancies, so it’s vital that you know which is best for your situation. For example, if someone wants to invest in buy-to-let, they might need to take advantage of government schemes such as Help to Buy because banks often won’t lend money unless there’s some help available. You’ll then need to find a good tenant, which is another skill that requires practice because it can be challenging trying to keep everyone happy at the same time.
3 – Property prices can be inflated, don’t overpay.
Regardless of whether you’re buying or renting your property, chances are there are some better deals out there if you ask around enough. This means making sure you know how much each type of investment will cost so that you don’t buy anything too expensive or accept below market value for your home when lettings out – both of these scenarios will eventually lead to losses. Hence, it’s best to try and avoid them where possible. Make sure everything is done legally too.
It’s also worth checking what rights tenants have these days regarding law changes (which are pretty frequent for some reason), but you must know your rights as the landlord or owner of the property. This means knowing all of the ins and outs regarding buying, remortgaging, value-added tax (VAT), and any other fees that might come up along the way.
Where to invest in property?
Ideally, you’ll want to choose somewhere which offers strong returns on your budget – this usually involves finding a place where there are plenty of jobs nearby, good transport links into the city centre and not too many houses being built.
Then if you’re lucky, you can sit back and watch your property value rise in value over time – unfortunately, it doesn’t always work out like that, though, so you might need some patience when it comes to waiting for your properties to pay off in full.
Top tips are probably to choose somewhere local where the economy is stable, but you don’t have too many people moving away or new houses being built. These places tend not to appreciate quickly enough, which means that you won’t get back what you put in.
You’ll also want a reliable tenant with someone who can afford rent on time before anything else – this will ensure that they haven’t used up all of their spare cash on things like furniture and appliances, which could mean they struggle if house prices increase quickly. It’s likely worth finding out how much money they make, too, because someone who appears capable of paying rent might not be the whole picture. It’s a good idea to make sure they have a steady job and aren’t renting out property on their own – if these things aren’t true, then chances are they won’t have enough money to pay back what you’re owed, which means that they’ll start falling behind eventually.
When investing in property, it’s worth doing whatever research is necessary.
How do I choose the best type of investment?
The first thing you’ll want to know is what type of investment would be suitable for you – knowing everything about each one will ensure no unpleasant surprises later on down the line.
For example, private mortgages are no longer standard if buying a house because banks are reluctant to lend money to people who haven’t already got a large sum saved away.
It’s usually best to speak with an independent mortgage broker first who can explain everything that you need to know about mortgage payments on your property – this way. You won’t be left out of pocket once the purchase has gone through.
When investing in properties, it’s worth checking what rights tenants have these days regarding law changes (which are pretty frequent for some reason), but you must know your rights as the property’s landlord.
This means knowing all of the ins and outs regarding buying, remortgaging, value-added tax (VAT), and any other fees or charges that might be up along the way.
Read up on all of the changes to property law in your area because it could save you a lot when it comes time to sell or if there are specific problems with your property income.
What different types of property are there to invest in?
The most common type of investment property is used by people who want to rent somewhere to live. This could be for reasons such as buying their first home or moving into an area nearby where they work – it doesn’t matter what the case might be, just so long as these people are willing to pay you every month instead of paying someone else. Residential areas usually appreciate value more quickly than commercial properties, but many experts agree that this isn’t necessarily true everywhere.
These are often seen on business parks and high streets because lots of businesses use them as a place to store goods until they’re ready to move on. Commercial investments are more complicated than residential ones but can be more rewarding once you’ve had a little practice managing them. The residential property comes in many shapes and sizes. Still, commercial investments only have one option – this is why they can be more complicated because you’ll need to know all of the necessary details at a glance just so that everything else makes sense.
These can include office blocks, car parks and warehouses depending on where they’re located and what businesses have been set up nearby. With non-residential properties, it’s worth finding out which industry is going into these buildings before deciding whether or not to invest in them because some might require more work than others do once renovations are complete. It’s also crucial that you see how much money each business brings in every month because this is what you’ll be basing your investment return on.
Retail property investment
Retail property investment is a good way of earning high returns because it’s relatively easy to manage. Businesses always need somewhere to store their goods before they’re ready for sale or distribution. You should think about the business hours of the building as well as whether your tenants will be open all year round or just at specific times of year – which can increase how many people you attract each month.
This is a mixture of one or more different types of property located close to each other. These can be apartments, offices, and shops located on the same street – this means that the buildings will need to complement each other in terms of appearance and function. This allows you to put together a bunch of independent areas into one, which could be worth up to ten times more than if they were separate parcels of land at opposite ends of town.
What’s the best type for me?
The answer depends on what you think will bring in the most money when it comes time to sell your investment because this is how you’ll get your return from it. However, don’t forget about tax implications because different investment properties will be taxed in different ways.
Other types of investment vs property?
It’s worth thinking about other types of investment because these could bring in more significant returns than property investments do. You’ll need to dedicate some time learning about these before you start putting money into them, but it could be worth the effort.
Capital gains tax
When you sell your property, you’ll have to pay capital gains tax. This is the amount of money that the government takes from your return. If you buy a property or business for one price and sell it for more than this, then you need to pay them back some of what you’re owed.
capital growth expectations with property investing
Expect to see returns of between six and eight per cent with residential investments. This means that you’ll be able to sell your property for around £4000 more (on a £60,000 property you’ve purchased a year later, which is a good return on investment.
Commercial properties might bring in returns of up to ten or twelve per cent. This can increase as much as 20 or 30 per cent for mixed-use properties because these will have a mixture of business types within them – this makes them even more valuable because they pull in different amounts from different sources.
Finding a buy to let mortgage lender
You should only consider one of these lenders if you have a good credit history and can afford each month’s repayments. It would help if you thought about how much you’ll be able to borrow and whether your monthly income covers this amount – which is something that you’ll need to find out before starting anything else.
How to maximise rental income on buy to let investments
If you’re thinking about buying a property and renting it out, you need to consider increasing the amount tenants pay each month if your costs aren’t going down. This could be done through renovations so that the place is more presentable for renters – it’s worth hiring professionals who know what they’re doing, as this will save you money in the long run. It’s also possible to get good deals on furniture and appliances for these buildings because companies want them off their books.
Starting your property investment portfolio?
It would help if you thought about your exit strategy and how long you plan to hold each property before selling it. This is important because the amount of money you’ll get from it could be very different between these two options – there’s a big difference between getting £60,000 for something after ten years and getting £120,000 for it if you keep it for four or five years instead. If your goal is to buy an income property, this makes a lot more sense to get a quicker return.