Here are some tips which will help you invest in property.
1. Make Sure You Know What You Want
There are many different ways to invest in property, so it’s very important to understand what kind of investment you’re looking for. Is it:
An asset for your business, such as owning your own office?
A holiday home which will generate revenue when not being used?
A place which you can renovate and flip on the short term?
A property you can rent out for a consistent second income?
2. Come Up With A Timeframe
Knowing what is it that you want will logically lead you to coordinate a time frame to achieve it. In other cases, the timeframe may help determine what kind of investment you’ll pursue.
For instance, if you want to get a return in the short-term, you could try to flip a property – though it comes with costs and can be risky. Flipping involves buying properties that are under market value, then doing a renovation and selling them at a profit.
On the other hand, if you want to get higher returns over a longer period of time, you could buy to let, instead. You can reasonably expect a yield of around 10 percent, although a lot of variables will impact it, such as periods of vacancy, interest rates, and ongoing maintenance costs.
3. Be Careful Not To Over-Leverage
When possible, it’s best to avoid a mortgage of over 50 percent to purchase property. While it can be difficult initially when you’re building your portfolio, it should become feasible relatively soon. While remortgaging can seem attractive, it’s usually a bad idea. If you have to do it, shorten the loan duration, since the longer it goes on, the more pain it’ll probably cause. Private money lenders for real estate can help you but as before, don’t over leverage.
4. Avoid Shared Mortgages
While shared mortgages allow you to get a higher rate, they require someone to be the core borrower, and another person to borrow less. Whoever has the higher income will be the core borrower, regardless of who has the highest credit rating, so interest rates could increase substantially.
Typically, this kind of mortgage only allows for one owner, so splitting ownership down the line can be a long, tiring process which may strain your relationship with the other borrower.
5. Take Small Steps First
Committing to full ownership of a property can be a big risk, so you could initially consider investing in a Real Estate Investment Trust (REIT) or a fund. This kind of product tends to be well structured and even offer better liquidity.
6. Review Your Plan Constantly
Make sure to keep clear notes of the investment process, and to plan ahead six months in advance, at least. Real Estate can change very quickly, so always be ready to respond to changes, and ask yourself hypothetical questions like:
What will I do when mortgage rates change by X percent?
How will I react when my property’s price rises? What if it falls?
7. Consider Investing Overseas
If you’re not confident enough to invest in your domestic property market, you should consider foreign markets that have a different currency and may require less investment and even provide higher yields. You’ll need to do extensive research, of course, before you hand over your funds for a third party to manage.
Make sure not to look at the property’s potential and value, though – you need to consider the political and economic stability of the country you’re investing in. Gauge the country’s tourism status – if it’s a tourist hotspot, the property market is usually lucrative. Some great hotspots are São Paulo, Istanbul, Berlin and Sofia (Bulgaria).
8. Don’t Be Shy
If you’re buying from a private seller, it’s always a good idea to try and bargain. If you can, find out as much as possible about the property, and even about the seller themselves, since you might discover something that warrants a price reduction.
9. Save on Taxes
By using the right kinds of property investment vehicles and buying the right types of property, you can significantly reduce tax payments. Make sure to get professional accounting and property advice so you know you’re getting the best deal and aren’t doing anything illegal.