Any budding investor has most likely stumbled across property as a means of investment. Property is one of the most popular forms of investment due to its security and passive income approach.
On the face of it, making money in property is straight forward. On a basic level, you purchase property then choose to ‘flip’ it or rent it for passive income. However, it goes much further than this and there are many ways to make your money go further. Below we share out top tips for beginners looking to invest in property.
1. Pick The Right Strategy
There are many strategies to maximising your return on investment when investing in property, the strategy you take will determine your success over both the short and long term. To elaborate on the prior point, there are strategies within letting out and ‘flipping’ your property to make the best returns based on your preference.
Flipping a property is the process of buying a property at a reduced price (generally due to disrepair), making the necessary repairs, maintenance, styling it to a modern standard and selling it soon after for more than you bought it for, plus the costs of repairs etc.
This is a viable option to those that have an ability to stick to a maintenance budget and have an eye for design. Flipping a property yields the fastest returns if done right but be sure to consider the area (including demand, transport links) and selling prices in the area to ensure when flipping the property. When it comes to condominiums, you will need to determine the value of a condo to ensure that you will make a profit that was worth the time invested.
Letting the property
Alternatively, letting out the property for passive rental income is the other major option. However, there are a few ways you can differentiate when letting out your property, this will largely come down to the size of the property you have purchased.
A single let is the common way to let out your property. Typically to one group such as a family or couple, one source of income is obtained from the property on a monthly basis. Going further though, if the property you have purchased is large and can accommodate shared facilities, you may opt for an HMO.
An HMO (house of multiple occupation) is typically let out to several, separate tenants whereby each tenant pays rent on their room and the remaining facilities are shared (kitchen, shared living areas, bathrooms etc.). Although the rent you obtain from each tenant is less, the overall amount from the property is higher.
You need to be careful when opting for an HMO however, there are stricter requirements to adhere to when it comes to room sizes and access to shared facilities. You will also have more tenants to manage and keep happy, but the potential for greater income, for many, will make this obstacle beneficial.
Also remember that, if you’re going to buy an apartment or townhouse, there will be other fees you’ll need to pay. This includes “body corporate services“, which control the budgets, repairs, maintenance and governance of all connected properties.
2. Study the market
The difference between investing in property for financial gain and moving to a new house is quite significant. Whilst moving to a new home is often circumstantial, an investor should time their property investment to take advantage of lower house prices or predict a rise in prices in an area.
Understanding rental and purchase demand in an area and understanding issues relating to the wider economy (such as the recent COVID-19 lockdown) will give you an understanding of when and where to commit to your first property investment.
Finding the right area to invest in is probably one of the most vital parts of the entire venture. According to property investment company RWinvest, taking the time to research an area (the amount of ongoing regeneration, crime statistics, etc.) is an important factor to consider before fully investing in your chosen property – it can make the difference between a failing investment and a successful one.
3. Which tenants will you target?
Relevant for those planning to let out their property, identifying your target tenants will play a crucial role in the success or downfall of your property investment.
For example, if you are planning to target university students, an HMO will be a good option. In addition, the location of the property will need to be either central to the city, near the university or have good transport links to be suitable for this demographic.
The furnishings will need to appeal to a younger audience, and you will benefit from getting an average price for rental in the area to base your price at. Whatever target audience you decide to target, be sure to have done your research and tailor the property to these demographics needs.
4. Appreciate that there will be risk
Whilst property is considered a safer investment than other traditional investments in stocks and shares, there is still risk involved when it comes to investing in property. Identifying these risks before investing will mitigate financial damage.
Although unprecedented, house prices have fallen as a result of the lockdown, with work coming to a hold. Those that were looking to flip a property during this period are likely to have had barriers to overcome financially, though this may only be in the short term.
Prices are expected to gradually rise again, should we not go back into a second lockdown. By early 2021, house prices should begin to see a strong recovery according to most experts. Sellers or flippers should consider holding until the market has hit the levels of activity, we had seen pre-lockdown.
5. Understand when to get support
It can be overwhelming to manage your own property; many consider it a part time job. If you are finding it difficult to manage your property rental, consider bringing in additional help.
A property management company can manage your tenants on your behalf, only alerting you when necessary. Although using a management company will cost you money, the benefits of happy tenants and having more time to invest elsewhere, for many, is a necessary expense.
6. Know when to expand your portfolio
If you have had success with your first property investment, you should naturally look to expand your portfolio. Start small, do not try to do everything at once.
Although your first investment may have been a success, stretching yourself will only increase your chances of failure. Keep your tenants happy or remain careful when purchasing new property to flip, a diverse portfolio is most investors dreams, but much like a property investment itself, is a passive approach and should not be rushed.