Buying property can be one of the most worthwhile and remunerative investments, and it is a perfect way to make the most out of your money. Many people think that spending a fortune on real estate is not worth it and that it can be risky.
However, some of the richest and wealthiest people in the world started off as property investors. So if you’ve been thinking about real estate investment for some time, here are our top three property investment tips to get you started on this journey!
Choosing The Right Property
When it comes to property investment, you have to rigorously research, till you find the perfect location. You want to purchase your property in a location that has high demand in the rental market, to ensure capital growth, and success for your investment. Locations with high demand have to suit the demographics of people in the area and have the necessary amenities, like nearby schools, hospitals, parks, and supermarkets. Ask yourself if this is a place where you’d like to live. Researching locations online is not enough, speak with locals in the area who will provide you with first-hand, up-to-date info about the place, and let you in on any changes that are happening around. They may even inform you if there are better deals or options they know of, and that have better facilities that their area or neighborhood lacks.
You also don’t have to buy the most luxurious home on the block because you want to attract tenants, the less expensive the house, the fewer expenses you’ll have to pay every month. Start with an average property, as more people are looking for affordable houses.
Look for a property with a price below the market, and that won’t require major renovations so that you can obtain a high-profit margin.
You need to sit down and evaluate your plans. Cash flow forecasts, appraisals, and budgets are fundamental, as these measures will help you decide on how you’ll finance your investment.
Use investment appraisal:
Investment appraisals evaluate the profitability of investments and examine how much returns will exceed costs. The folks at Bellwetheram.com state that consulting real estate professionals can help you with the process of investment appraisal and help you evaluate any risks associated with your property investment, thus you’ll be empowered to make well-informed decisions.
Methods of investment appraisal include:
- Payback period; length of time it takes for the net cash flows to cover the original capital cost of your investment.
- Accounting rate of return (ARR); measures the annual profitability of the investment.
- Net present value; today’s value of the estimated cash flows that will result from your property investment.
Compare your return on property investment with other types of investments like buying stocks, bonds, or saving money in banks. Stocks can offer a rate of return of around 7%, while bonds can offer a rate of 4.5%. Make sure the property will offer you a high or a close rate of return; you should also know that property investments’ rate of return rises over time. If you’re planning to finance the investment by borrowing a bank loan, make sure the rate of return of your property investment brings a higher rate than that of the loan’s interest rate, to avoid debts and cover your costs. Preparing cash flow statements will help you determine your ability to cover your costs, and predict when there might be shortages of cash. Cash flow forecasts estimate your cash inflows; for instance earnings and rental income, and outflows; all your ongoing expenses, insurance costs, and don’t forget your income tax and rental taxes.
3. Managing Your Property
Property investment is not just about buying a property. For the investment to be successful and maintain its returns, in the long run, you need to manage the tenants properly. Studying the legal implications and knowing your rights and responsibilities as a landlord will help keep things in order for you. You can also hire a managing agent who will give you advice on property laws, choosing the right tenants, conducting reference checks, and who can also make sure tenants pay on time. Finding a property manager can reduce your frequent visits and interactions with tenants, as there are laws that give them these rights to ensure their privacy. You can check with your agent from time to time to make sure the tenants are maintaining the property’s good shape and looking after it.
Keep in mind that property investment is a long-term investment, so don’t look for the most expensive properties, depending on the fact that their price will keep on rising, and that the investment will surely make you a millionaire in a few months! You have to look for the most affordable properties in the long run, even if you’re certain you’ll be receiving high rent revenues. Don’t choose hastily, take your time, carry out the necessary measures, and follow these top investment tips; they will certainly put you on the right track.