Property has become an increasingly important component in the investments market over recent decades. The time was when the only real estate that everyday individuals invested in was their own homes, and having a property portfolio was something that was left purely to the experts.
These days, an ever-growing number of people see property as one of the safest investment options around. That is hardly surprising – property prices are continuously rising, and many of the more traditional types of investment are realizing unappetizing yields, particularly in the wake of the economic downturn that struck globally around eight years ago and from which we are still struggling to recover.
Interest rates remain low, meaning savings accounts are unattractive, and pension funds are feeling the pinch for the same reason.
So should you join in and buy an investment property? The answer is yes, but only if you know what you are doing and take sound advice.
How does it work?
The concept is simple enough – purchase a property and the money you have sunk into it will grow every year as the value of real estate goes up. At the same time, you can let it out to a tenant, who will pay you rent every month. Therefore you will get a steady income stream, while your principal equity is also growing.
If you think that sounds too good to be true, you are, to an extent, right. Plenty of things can go wrong, and if you fail to invest wisely and then manage your investment well, you can easily end up losing money instead of gaining it.
There are four major points to bear in mind, and we will look at these in turn. But perhaps the first and most important proviso is to take some expert advice at the outset. By speaking to an investments expert such as Axel Preuss-Kuhne, you can arm yourself with the knowledge and experience of someone who has successfully trodden the same road before you.
The first thing you need to decide is where to buy your investment. That empty house at the end of your street might look perfect, but it is only going to be a good investment if there is a strong demand for rental properties in the area and, ideally, if values are strong and on the increase.
Don’t put the cart before the horse. Research locations, looking at the sales market for pricing information and the rentals market to assess demand and probable yield. Then you can start to search for appropriate properties in your chosen areas.
All good so far, but what do we mean by appropriate properties? That very much depends on who is your target tenant, information that you should have firmly in mind after all that research you did on the rental market. If you are not sure, research it some more!
Tenants come in a variety of flavors, including students, young professionals and retirees. Each has their specific needs, and you will have to provide a property that meets these better than the competition.
Also under the “what” category comes the question of age and condition. If you are an experienced amateur builder, plumber or carpenter, then buying a cheap “fixer upper” can be a great strategy. However, it is fraught with risk for the unwary, so only go down this road if you know what you are doing, as costs can rapidly escalate.
A house is far more tangible than a pension fund or a stack of shares, but it is still an investment, and that means it is all about the money. Run the figures, calculate the yield and if the numbers don’t stack up, then walk away and find something else. Don’t make the mistake of getting distracted by a beautiful garden, or a perfect setting. If you feel your resolve slipping, just channel your inner Jerry Maguire.
Once you have your property, you need a tenant. And once you have a tenant, you will have to deal with repairs, maintenance, rent collection and a thousand other day-to-day issues. If you feel brave and love the idea of being a hands-on landlord, then go ahead. However, for most, it makes more sense to place all the mechanics in the hands of an agent who will find and vet your tenants and deal with all payments and maintenance issues, leaving you to sit and count the money.
Make no mistake; property is a great investment. Handle it the smart way, and you will come out on top.