Buying an investment property is a great way to secure your financial future for the long term, but it is not a decision to take lightly. Aside from the price of the property itself, there are many other costs to factor in, and it’s easy to end up going way over budget to the extent you end up losing out. Before making any commitment, you’ll also need to study the local real estate market exhaustively. The following tips will help you get started on the right track:
1. Consider the Type of Investment
For most first-time property investors, a rental property tends to be the obvious option. However, investing in a property that you can profit from by renting it out to long-term tenants also requires a very specific set of market conditions. Most importantly, you’ll need to be sure you can get enough money from rental payments to cover any mortgage, insurance and maintenance costs while also leaving a healthy profit.
More experienced investors might look into buying a property for short-term holiday lets. While there is always a degree of uncertainty when it comes to relying on holiday lets as a consistent income, you will always be able to ask for a lot more than you can with a long-term tenancy.
Yet another option to consider is buying a dilapidated property for renovation and resale. Such a project can net you an enormous profit, but it’s not something you want to risk getting into unless you know exactly what you’re doing. If you can organize your own team of tradesmen and carry out a lot of the work yourself, your profits will be much greater.
2. Find the Right Location
It shouldn’t come as any surprise that location is one of the most It shouldn’t come as any surprise that location is one of the most important factors when buying any property, but this is doubly true in the case of investments. You’ll need to find a neighbourhood with a high appeal if you want to have any hope of getting a good resale or rental price. In the case of rental properties, it’s much safer to buy something in a good area where the likelihood of getting bad tenants who disturb the neighbours and default on their payments is less likely.
When you’re investing in a property to renovate and resale, you’ll need to be able to see the potential in otherwise unattractive and derelict buildings. The best opportunities often come in the form of the worst-looking house on the street but, after plenty of work, it will look new and inviting to potential buyers.
Before parting with any money or even making any offers, be sure to thoroughly examine the area first. If possible, get to know some of the people living in the region, and spend some time there to truly get to know it. Finally, consider buying in a growth area that is under redevelopment and increasing demand.
3. Factor in Ongoing Costs
It’s important to remember that there are many more costs involved when buying an investment property than the actual money you put down initially. For starters, all of the same costs involved in buying a home for your own use also apply, such as buildings insurance and conveyancing costs. However, with investment properties, you’ll also need to factor in any additional taxes that might apply as well as ongoing maintenance costs.
When buying an investment property, particularly one that you plan to rent out, you’ll need to have plenty of additional savings available to pay for unforeseen problems. The last thing you want is to have a tenant calling you because of a major issue that you cannot afford to fix. As such, you should always have enough money saved up to pay for any unforeseen consequences without having to apply for emergency funding.
Investing in real estate can be extremely profitable, but taking the wrong steps can lead to financial meltdown. You’ll need to have plenty of funding available as well as a contingency plan in case of things going wrong. As such, it’s always a good idea for first-time property investors to start small by buying a low-value but liveable home that needs only a small amount of work and money spending on it to get a good rental return. Only once you feel comfortable with the marketplace and you have built up a large amount of capital should you consider expanding your property portfolio.