With living costs rising across the board and many of us looking for second income streams, you might have considered investing in property.
Although it might sound like good fun to become a landlord, there’s much more to it than meets the eye. So, if you’re thinking of going down this route while house prices fall, here’s what you need to know.
Start with the basics
Before you start hunting around for properties to flip, you need to work out what sort of investor you want to be.
For example, the first step is thinking about whether you go alone or partner up. If you have the capital and want to go it alone, then do so. However, if you lack the funds to go solo, think about teaming up with friends or family to make life easier.
Decide how you’ll finance your investment
Before you start putting in offers left, right, and centre, you’ll need to decide how you’re going to fund your investment. Do you have the cash sitting around? Or do you need to take out a buy-to-let mortgage?
You’ll also need to account for stamp duty, the running costs of the property, survey costs, solicitors’ fees, and insurance.
How to invest?
Now you’ve sorted the basics, it’s time to invest. Here’s how.
Choose where you want to invest
Here, you’ll need to thoroughly research where you want your investment property to be. You should look to consider the cost of the property, the average rental price, the sort of tenants you’ll be attracting, and how close the rental is to your home.
Once you’ve decided on the area, you’ll have to wait patiently to snap up the perfect property. There’s often a rule to go for the worst house on the best street, they tend to be cheaper and with a little TLC, can be worth more.
Make sure you’re investing in a good area
Where rental demand is high, you’re far more likely to be able to charge more per month. You’ll want to ensure that over time you’re making a profit – rather than just breaking even. So, make sure you’re buying in a desirable area.
Understand the risk
Although it’s an exciting time, it’s also important to understand the risks. For example, rent isn’t always guaranteed. If you’re struggling to find tenants, you might not be able to afford the monthly repayments.
House prices can also fall, which can result in you losing money. Not to mention some tenants can be expensive if they continually damage the property.
Think about how you want to manage the property
Although managing the property yourself is the most cost-effective way, hiring a letting agent will help take the stress off your shoulders. Additionally, they can help with finding possible renters while doing full background checks. They also handle all the maintenance work and communication with the tenants.
Now all that’s left to do is to sort your finances, think about where you want to buy, and start house hunting.
Benefits of Property Investment
Property investment can be an attractive option for those looking to achieve long-term financial security. Real estate investments provide the potential for income and capital growth, asset protection, and tax advantages. Here are some of the common benefits that investors should consider when looking at property investments.
- Income: Investing in rental properties can generate a steady stream of income from tenants who lease the property. As rents increase, so will your income, giving you greater financial freedom and stability.
- Capital Growth: The market value of your investment property should increase over time, giving you an opportunity to build equity – similar to stocks or bonds investing. This cumulative increase in value can be realized through either a sale or refinance of the asset at a later date.
- Asset Protection: When properly structured, property investments can help protect your other assets in case of any legal action such as bankruptcy proceedings or civil judgments against you. This makes it an appealing option for those who want additional protection of their wealth with minimal risk involved.
- Tax Advantages: Tax laws vary greatly between countries but in general, investors usually receive pro-rated deductions on their investments’ expenses such as mortgage interest payments, property taxes and depreciation deductions on equipment or improvements made to their properties. This allows investors to reduce their taxable income and save money when filing returns each year.
Financing Options
Financing is often the most challenging hurdle during the process of purchasing real estate. Property investments can be a long-term commitment, so it’s important to understand your financing options. Depending on your goals and capacity, you may wish to secure funding through traditional or alternative methods.
Traditional Bank Loan Mortgage:
This is one of the most popular options for securing residential real estate investment financing and is available to both individual and business investors. The loan amount is typically based on creditworthiness, income, property size and collateral value; repayment of principal and interest are done monthly over an extended period of time with a fixed or variable interest rate depending on current market conditions.
HELOC (Home Equity Line of Credit):
This option allows borrowers to access existing equity in their home and use it as collateral for a loan. Borrowers are generally able to take out a loan at a lower rate then they would with a traditional mortgage and have the flexibility of selecting either fixed or variable rates; repayment occurs over an extended period of time with flexibility over payment amounts and timing.
Alternative Financing Options:
Investment property buyers may seek alternative financing methods when applicable, such as those offered through private money lenders or hard money lenders which generally offer shorter terms at higher interest rates than public lending applications, however can be much quicker than traditional avenues via banks with less paperwork involved. Other creatives financial programs may also be accessible such as:
- Seller carrybacks
- Partial wraps
Depending on the borrower’s individual needs/agreement with seller – this method requires extensive research prior to signing any paperwork in order to determine if any potential risks might occur as a result of verbal agreements made by both parties upon signing sales agreement documents – always consult legal counsel prior engaging in riskier financings that require alternate forms outside conventional bank loans/mortgages described above.
Conclusion
Investing in property can be a great way to build wealth, but it’s essential that you understand the process and do your research before taking the plunge. By familiarizing yourself with the different types of investments, understanding how to evaluate potential properties, and learning about ways to finance your investment, you’ll have a good foundation for success. With dedication and persistence, investing in property can be both rewarding and profitable.
