Although the real estate market has endured a little more volatility in recent years than it has in previous generations, property investments remain one of the most effective instruments for building personal wealth.
You may be looking to change careers and become a property developer or use property investments to create a secondary revenue stream. Either way, when you follow a clear blueprint, it is possible to earn good money from this venture. But if you fail to implement the proper steps, you could stand to lose out big. Here’s all you need to know.
Spend Some Time Researching Property Prices
When looking at investment properties for sale, value for money is even more important than when buying a home. Whether you are currently in the process of searching for your first asset or analysing your options, research is key. Otherwise, you may overspend on the asset. Sadly, this ultimately makes it far more challenging to profit from your efforts as an investor.
Getting more bang for your buck is pivotal for every investor. So, you need to familiarise yourself with what to expect depending on the location, property type, and condition of the asset. If nothing else, this should make it easier to understand how much your potential ROIs could be. This is because you can compare property costs against rental fees or future sale prices.
Improve Your Financial Situation
Buying investment properties follows a different path than a home one. For starters, a buy-to-let mortgage has significant contrasts with a standard mortgage. Nevertheless, your financial situation will have a telling impact on your business opportunities. From interest rates to borrowing capacity, your financial health plays a key role.
Therefore, it’s essential to build your credit score in the months leading up to seeking mortgages or business loans. While there is no requisite figure in mind, it also helps to have access to capital and funding. It strengthens your position when acquiring real estate assets. It also helps to fund ongoing overheads. Entering the process without funds won’t work.
Know Your General Strategy
Property investments may unfold in many ways. The most obvious option is to become a landlord. You take out a mortgage on a property and then charge a tenant to live in the unit. This creates a monthly return that outweighs your mortgage costs, thus yielding you a profit. If buying the property rather than using an interest-only mortgage, you’ll also gain asset appreciation.
However, there are many other ways to handle property investment. You may look to flip properties by buying them cheap before fixing them up to sell at a profit. Or you could play a more passive role by joining a group of investors to pool money together and use this as leverage for more significant returns. Find a solution that works for you, and there’s no looking back.
Understand Additional Costs
Entering the real estate investment marketplace is not just about property price versus revenue. You will encounter a host of additional costs. If you fail to take these into account, you will either run at a far smaller profit than imagined. Or potentially at a loss. With this in mind, you must enter every investment with a clear image of the complete picture.
Additional costs when acquiring the asset may include stamp duty, survey costs, and legal fees. Moreover, you are likely to encounter admin costs. If you are a landlord, for example, you will also need to cover any general repairs on the property unless the tenant has violated their contract. You will also be expected to pay tax on your profits. Do not forget it.
Find The Best Borrowing Deals
If you have the funds to create a property portfolio by purchasing assets outright, you don’t need to start a venture anyway. So, if you are stepping into the property game, securing the best borrowing terms is essential. As already stated, understanding repayment versus interest-only mortgages is a key step for taking out a buy-to-let. But there is more to know.
As with residential mortgages, the products offered may vary significantly between lenders. So, you must not fall into the trap of taking the first deal that you see. Take some time to research your options and speak to lenders. It could be the key to securing the best rates. Aside from maximising your profit margins now, it may accelerate your growth opportunities.
Know Where To Get Help
As a real estate investor, it may be possible to do everything yourself. However, it will often be a timely and expensive route to take. Not to mention, it is impractical if you run the venture alongside a career or other business matters. While you will need to pay for them, outsourced services often bring higher long-term profits. They also lift a weight of stress from your shoulders.
Help could come from many sources. You may use an estate agent to handle tenant issues on your behalf. Or you could hire a property management company to handle short-term holiday rental properties. Meanwhile, builders and decorators can provide valuable support when updating a property. Aside from saving you time, superior results are virtually assured.
Question Whether You Should Go It Alone
Regardless of how you tackle property investments, you will need to hire outside help. However, you should also consider whether it may be better to invest with a business partner or partner. The prospect of joining an investment group has already been discussed. Aside from leveraging extra funds, your collective knowledge may yield better results.
As well as investing as a group, you could look at finding a mentor. Someone who has already been there and done it can pass on their wisdom. This, combined with potential networking connections, makes them an invaluable piece of the puzzle. Above all else, you will be free to make your next real estate investment moves with far greater levels of confidence.
Understand Property Types
While many factors contribute to the success of your venture, the portfolio you build naturally sets the tone. With this in mind, it’s essential to consider different property types. A diverse portfolio will give you greater versatility in the market, allowing you to adapt your strategy over time as needed. Even when acquiring the first asset, though, property type choices are vital.
As well as fixer-uppers versus properties ready to rent, you must consider dwelling types. Multi-unit properties may offer the perfect choice. Lenders often see them as a less risky option as investors only need to fill a percentage of the units to cover their costs. It is an ideal way to gain multiple units. Better still, the logistics of managing them are simple.
Create An Exit Strategy
When starting in real estate investment, your excitement focuses on the assets you’ll acquire and the profits you’ll make. However, you need to take a long-term view of the strategy too. So, as well as setting SMART goals for property investments, you must consider potential exits. Otherwise, it will feel as though your investments are void of any real direction.
An exit strategy must focus on several key factors. Selling a rental property if the income hits a certain level could be key to maintaining cash flow or stopping potential losses. You should also know whether you plan to move properties after a particular time. Similarly, if this is your retirement fund or estate to be left to loved ones, you must build with this in mind.
Know How To Access Funds
In addition to the exit strategy for properties and portfolios, you must remember that cash flow is a key feature. Consequently, there must be ways for you to access funding. In some cases, this could mean facilitating a quick cash sale of an asset. However, this outcome isn’t required too frequently if you have other safety nets in place.
Bridging loans can be beneficial when plugging temporary issues. Of course, it does mean paying back extra money due to interest payments. So, if you can get yourself in a position to have funds stored away, that’s ideal. One way to achieve this is to negotiate repayment plans with creditors and services rather than pay for them upfront.
Know That Success Requires Hard Work
Finally, you need to enter the real estate investment arena with a clear view. Landlords get a lot of stick from the public, which often causes people to gain the wrong impression. While there is a lot of money to be made from property, it’s not a guaranteed easy route to money. If it were, everyone would be out there making millions from the property market.
There is a learning curve. There will be unexpected costs. Issues like bad tenants will cause stressful moments. So, you need to develop the patience and willingness to learn. With the right attitude and a consistent approach, there is no reason why you can’t turn property investments into life-changing results. But only if you’re willing to work for it.
