4 Things You Need to Know Before You Start Investing in Property
So, you are curious about investing in property, but you aren’t sure where to start? These are 4 key things you need to know before you begin.
1. What does investing in Property look like?
Investing in Property can take a number of different forms. The basic concept is that someone (the investor) purchases a property with the purpose of either renting it out and earning a return or selling it on for a profit.
Property investments are generally considered to be less risky than the stock market, and can ensure a steady income stream over time. Other, more risky, property investments are also available; these can sometimes offer higher returns, and often include a portion of the investment going towards renovating or developing properties that will sell for a great deal more than the principal investment.
2. Who can be a property investor?
One of the most common ways millions of people invest in property is through their own home – if you own a property and have witnessed its value appreciate over time, then you are a property investor. Your original investment when you purchased the house can result in a profit!
Many people who have ‘fixed-up’ their own home have also experienced investing in property; by spending an upfront amount (of time or money) on renovating a property, and earning a higher house value as a result.
3. How do I buy an investment Property?
If you are looking to invest in a property yourself, one of the key questions to consider is whether you would like to Buy to Let or Buy to Sell.
Buy to Let involves purchasing a property (sometimes outright, sometimes with a Buy to Let mortgage) and renting it out. The rental income can then be used for personal income, covering the mortgage payments for the property or for buying more property investments. Buy to Let is a common method of property investment and has the potential not only for stable returns (called rental yield), but also growth year-on-year.
Buy to sell is another investment strategy, where the investor purchases a property and renovates it; this is often called a property development. The aim is to increase the value of the property considerably, over the initial cost of the property and contractors, to maximise returns.
The two investment strategies each have their own benefits; Buy to Let is often preferred because it requires a less hands-on approach compared to Buy to Sell. For this reason, Buy to Sell investment opportunities are often available in the form of investing in a property development companies stock, or bonds which are raised by firms who want to develop property themselves.
There are also different legal implications between Buy to Let and Buy to Sell – renting out property to tenants is a very different from project managing a development, too! Ensure that you understand the differences between the two before you jump into either.
4. Where should I invest, geographically?
Another key property investment tip is researching the locations where good rental yields can be made. This can mean choosing an appropriate region in your country, but also prime areas for investment within individual cities and regions.
You can find the average rental yields for different regions online, but it can also be a good idea to visit or have an understanding of the area you plan to invest in. For example, you can understand whether you should be focusing on upmarket tenants or students.
Finally, it is important to recognise that Buy to Let is often appropriate where property values are lower; by their nature, percentage yields available on these investments are often higher, and there are more opportunities for growth in the value of the property. Buy to Sell is often more appropriate in areas with higher property values, where run-down properties can be prime for renovation and re-selling!