What is property investment?
Property is always a popular vehicle for investment. It involves purchasing a property with the intention of either selling it on or leasing it out to tenants in order to generate passive income. As a physical asset, property investment offers the potential for two different income streams and can quickly become lucrative if done correctly. Typically, property will be purchased while it is still being built – this is known as off-plan property.
Property investment opportunities, as with many other investment vehicles, can vary depending on the investor. Any type of property can be purchased, from apartments and houses to commercial buildings and student accommodation. Property investment can also be performed on any scale. Investors may simply choose to purchase another home whereas some will utilise a portfolio of different properties to maximise returns.
When is the best time to invest in property?
When it comes to property investment, there is no ‘best’ time to invest. The simple answer is, it’s relative to the investor. Depending on the end goals and assets, the ideal time to invest is different. For many, the top reason for investing is for future security and if this is the case, the best time is as early as possible.
In a recent survey, we found that around 40% of 25 – 34 year-olds and 35 – 44 year-olds are not investing at all. At this point in life, if you want to invest for the future, you’re missing out on maximising returns. This is the perfect time to build capital growth and take advantage of compound interest, not to mention any natural market rises that might occur. All of these factors could be the difference between a comfortable retirement at 55 and a struggle at 68 onwards.
Essentially, more of us are opting to retire early and live longer during retirement, meaning getting the timing right on an investment is crucial to determining the possible lifestyle further down the line. For those that want something more substantial, it’s vital now to find and create alternative monthly income wherever possible.
How to buy an investment property?
While the process of buying an investment property is relatively straightforward, there are many different aspects that must be considered before taking your first step into investment. Performing the necessary research is vital and allows you to make informed decisions on location, investment strategy and tenant demand.
These are all choices that are part of the due diligence process. When identifying a location, considering rental yields, property prices and price growth of the area can help you set achievable, realistic expectations in terms of budget and returns.
Focus on trends
Always keep an eye on property market trends to decide the best location to suit your investment strategy and remember that property is best approached as a long-term game to allow for maximum returns. Taking the UK property market as an example, it’s fairly common knowledge that while the London market is declining, regional markets are improving up and down the country. Look for growth plans in your chosen locations and see how they’ll improve the surroundings of your potential investment. The ‘Big City Plan’ in Birmingham is a great example of this and a key signpost for investors looking at new opportunities.
Work with a developer or agent
Working with a developer or agent is also an excellent idea, using their experience to support your purchase. If you opt to work with a developer, extend your research to cover their past performance and current stock. You need to have trust in your developer and asking the right questions beforehand can ensure you’re comfortable going forward with the purchase. If you’ve already chosen your development first, continue with the research fundamentals mentioned above.
Choose the best financial strategy
While some investors will purchase with cash, many property investors choose to take out a mortgage or loan to buy the property, using the generated rental income to pay off mortgage payments. While this process offers smaller returns in the short-term, it eventually amounts to pure profit once the mortgage is paid off. This strategy is particularly popular with people saving for retirement via buy-to-let property, allowing them to build up a portfolio over time that will deliver excellent passive income in later life.
I took delivery of my first off-the-plan purchase in November and was astounded that it rented on the same day! SevenCapital gave great customer service, helping me navigate a last-minute lender change, and provided an excellent furniture package. The apartment delivered was high quality, hassle-free and ready to rent!
My sales consultant Maria was helpful and very responsive to queries and phone calls during the sales process. I received good service overall.
What are the risks in UK property investment?
Trust with the developer
As with any investment, purchasing property carries an element of risk. This is why it’s vital to go with a developer or agent that is trusted. Your prior research should have given you an overview of the company and answer important questions such as: What are the building standards for completed projects? Is the developer financially stable? How many developments have been fully completed?
By finding out the answers to these questions, you can put your mind at rest and potentially avoid the pitfalls that come with a developer going bust or not completing on a project.
Size of commitment
Other external factors to consider include the size of the commitment and the level of work that goes into managing a property or even portfolio of properties.
Property investment often means having money tied up and unreachable for longer periods of time, especially if you’re buying off-plan property. It’s important to consider this when you’re working out budgets so you don’t sell yourself short in the long-run.
Voids in buy-to-lets
Issues like void periods in a buy-to-let property can be mitigated by being thorough in your research and making informed decisions based on past performance, case studies and forecasted figures.
If you use a mortgage or a loan to buy your property, ensure that you have the income to cover mortgage payments. Many seasoned investors will keep a small pot of money aside in case of unexpected void periods. While void periods will always occur, extended time without rental income can be a major setback for the majority of people, especially if you’re an investor with several properties. Falling behind on mortgage payments can also mean losing the property to the bank or loan provider.
Why buy an investment property?
There are many different reasons for choosing property as an investment vehicle. One of the biggest reasons many investors choose property is because of the relative security it offers. As a physical asset, it offers low volatility, with gradual increases in market prices helping build stability.
It’s also a very flexible investment – able to fit several strategies and goals. Property can be easily adapted to both a short-term and long-term strategy, depending on what you want to achieve. Whether saving for retirement, a nest-egg for children or simply diversifying savings, property investment can be a way of achieving these goals.
Accessible and Scalable
As an accessible, scalable investment, it’s ideal for a range of different experience levels. From first-time buyers to seasoned investors, property has the potential to be a strong performer in any portfolio, with the option of expanding on the number of properties always available.
Be your own boss
Property also allows you to be your own boss. You choose the type of property, the location of the property, the tenants and the amount of rent that’s charged. Unlike stocks or mutual funds, property investment gives full control over the investment.
Separate income streams
Finally, property investment affords the opportunity for two separate income streams – capital growth and rental income. Capital growth relates to the increases in the overall value of the property when it’s sold, whereas rental income is generated when the property is leased out to a tenant. Both of these are excellent ways of maximising returns over time and can be a very viable goal for any investor.
What skills are necessary for successful property investment?
Being organised is an obvious benefit. Having a set goal and plan of action going forward is an excellent start, allowing you to make decisions based on where you want to be. If you decide that you’re looking for a long-term investment in Birmingham property, you can then get a head start on researching the city and the opportunities available within it. Maintaining this due diligence to the fullest makes the investment much more likely to succeed.
Attention to detail
Attention to detail is also useful, allowing you to quickly identify what separates a successful and unsuccessful investment. By understanding what stimulates tenant demand, such as leisure facilities, schools or nightlife, you can purchase based on the surroundings of your development and how they fit into your overall strategy.
Good with numbers
Successful investors should also be comfortable with numbers. If you understand the difference between good debt and bad debt, you’ve already got a headstart. Property investors don’t need to be mathematicians but being comfortable dealing with your own finances as well as property-based figures such as rental yields and capital growth will put you in good stead.
Finally, it’s important to maintain a pragmatic, realistic view throughout the investment. If you’ve performed your due diligence and made sensible, informed decisions, you can have a realistic attitude about the outcome. This also applies post-decision. Once you’ve made an informed choice, it’s best to leave emotions behind and continue implementing your strategy.