Property investment is a great way to make your personal financial reserves work hard to you – now and in retirement.
However there is a lot of hype and many myths surrounding property investment. So what works? And what doesn’t?
Vicki Wusche, author of ‘Make more money from property’, looks at the ten crucial factors that will guarantee you make money when investing in property – whether you run your portfolio as a full time business or a ‘money on the side’ micro-business:
1. Be clear on your objectives. Are you looking for cash flow or capital gain? Are you planning for children or are they ready to head to university? Do you just want more cash flow for holidays or to prepare for retirement? Why you want to invest will help you decide the best strategy, area and property type.
2. Don’t be swayed by the other people. Do your own research. Start with areas you know, research property prices and potential rental markets and double check that with your current knowledge.
3. Don’t be tempted into a capital investment game. It’s still gambling. While the media reports that house prices will rise – the government will intervene to manage the speed of growth. Plus, wages have not increased, so how will people afford to buy?
3. Interest rates will rise. Ensure that you can ride the interest rate increases before you buy. Calculate the cost of a mortgage at 5% and 6% even 8% so you know exactly where you stand before you start.
4. Get a good team. From pre purchase (you need to be quick) to pre tenant (focus on the tenant) to post purchase (ongoing monitoring) – if you don’t feel confident about making the right decision – then get help. Speak to a professional property sourcing agent. They should be insured, registered with The Property Ombudsman and have properties that they have bought for themselves and clients.
5. Under estimate your returns. Make allowances and contingencies for voids periods and the cost of repairs. Assume 2-3 months a year are void (you will do better than this but be cautious with your figures and expectations). Make allowances for repairs and maintenance at approximately 20% of the rental income in the first year.
A monthly phone call to a letting agent to chase unpaid rent or the state of an empty room or property takes minutes but again will save hundreds of pounds or more in lost rental income.
7. Aim to provide a long term home for tenants. This will reduce voids. A family home near a school, a high quality professional HMO space for ordinary working people will ensure your tenants are happy and want to stay.
8. Buy with your tenants in mind and refurbish with your tenant in mind. Students and professionals will need wifi, TV package and a TV licence. A family will want a garden. Nearer to town will need off street parking. Buy right, and refurbish it right.
9. Every pound spent must count. All money spent on the property after purchase must increase the value of the property or increase rental return or don’t do it.
10. Keep a cash reserve in the bank to cover emergencies. Like voids or repairs.
By following this advice you will help to ensure that your property makes you money every month – not costs you money. Always plan before you buy, consider the financial implications and don’t get tempted by the hype and the myth that this is the last chance to buy a property before prices go up.