Investing in property is one of the most popular forms of investment, alongside bonds and stocks. Property investment can be lucrative and it makes good business sense as in most cases property increases in value over time.
There are different forms of property investment and not all investments require lots of disposable cash to buy a property outright.
The main form of income gained from property investment is from rental income in the rental market, or from buying property at a low price in order to sell on at a profit.
Buy to Rent
Buying a property for the rental market sounds a simple concept in theory.
You simply buy a property and make a few alterations in order for it to be suitable for the rental market.
There is, however, a large financial commitment - you will require a large deposit to purchase the property and you will more than likely require a mortgage or loan for the remainder of the balance.
You will also need to factor in the legal costs associated with purchasing a property.
Many people who invest in rental properties purchase properties that require renovating, this is so that the property can be purchased at a low price. If you are not experienced in renovating properties the purchase could turn into a “money pit” as hidden structural problems could be revealed. If the renovation is more than you can take on financially it may be best to cut your losses and sell on.
Whilst taking on a renovation project it’s important to make sure full structural surveys are undertaken prior to purchase. Ensure you get the best price available for the work to be carried out by getting at least 3 quotes from contractors, also look at examples of previous work.
Rental Property is a Long Term Investment
It is important to see investing in a rental property as a long-term investment. It will take time for the rental income to offset the costs associated with buying the property. The housing market has a tendency to fluctuate, meaning that the property may drop in value before rising again.
Buy your property in an area where there is a need for quality rentals.
Perhaps consider an area close to public transport networks. Other people want good schools or a place with a lot students.
While others are looking for great work opportunities.
In a strong rental market, you can get higher rents with less vacancy. That means a higher return on your investment.
In bad markets you'll get lower rents and vacant units will sit longer.
Remember to factor in costs associated with renting out a property, it is likely that at some point you will need to invest money on an ongoing basis to cover maintenance costs.
Property investment funds
If you don’t have lots of cash to buy a property outright you could consider investing in property funds.
Different investors pool their money together under the direction of a fund manager. The funds are then either invested directly in property or property shares.
There are different forms of investment funds too. You could be investing in offshore property companies, real estate investment trusts etc.
The fund manager will take a fee for managing investments, though. You'll need to do some research to ensure your money is in safe hands. Look for reviews and testimonials from previous property investments.
Investing in property funds, although potentially lucrative in time, have associated risks. There is no guarantee that your investment will rise in value due to the unpredictability of the property market. Property investment funds should be seen as a long-term investment option.
If you are in the building trade you should you feel confident enough to tackle a property renovation.
Trust me, there is money to be made.
Properties that require renovation can be bought at a very reasonable cost with the view to sell on at a later date when the project is complete. Location is essential, so do your homework about the area in which you want to buy.
Research as to how long the property has been on the market and view sold prices of similar properties in the vicinity. It is essential to ensure that once the project is complete that you gain sufficient profit.
Before purchasing the property get a full structural survey done so that you have a good idea of the costs involved. There is profit to be made if you can purchase a property at below market value in order to renovate and either sell or rent out.
There are a ton of different types of renovations to do on any part of the house. Just consider the garage - one of the most forgotten parts of a house. There are so many different ways to use it and each way can affect the value differently. For example:
A Garage Lounge.
Transforming an unused garage space into a spare lounge doesn’t have to be particularly expensive.
If your garage is attached to the side of your living room, think about opening up the space with a sliding door. This will allow you to bring a lot of fresh air and light through to your existing lounge.
You can make the renovation simple:
- cheap but functional paints
- upcycled furniture
- lots of rugs and lights installed
These small improvements and more can make the garage the most comfortable lounge space you’ve ever had.
A Garage Studio.
Art lovers, dancers and singers often need a space to practice and be creative. A garage is a great place for this, as you can soundproof it as you need to and continue to practice without disturbance. Potential buyers who have a creative streak will love this innovative use of space.
A Guest Bedroom.
Having relatives stay over can be a pain, especially if you haven’t got any space in your existing bedrooms. Think about turning your garage into a bedroom and you’ve created a new space entirely for people to stay.
The loft is often the first place to renovate, but don’t discount your garage as the right space for a new bedroom.
A Garage Office.
An office is a piece of prime real estate. A functional home office is something that most professionals look for – especially those who work remotely.
You can set up for the day away from the main house, but with the world’s shortest commute.
Buyers will love the fact that you’ve thought outside the box for your work-life balance. It’ll be a high selling point for the home to have an office at all.
It may cost some money to get renovations done, but if you’re investing in the house to add value, you’re going to thank yourself later!
Risks associated with investing in property
There are risks associated with investing in property, mainly due to the volatile nature of the property market.
If you wish to build up a portfolio of properties for the rental market you will be investing a large amount of money. Over time you will reap the benefits of rental property, however, it will take a while and so should be seen as a long-term investment.
The demand for rental properties can vary, but will hopefully even out in time. If you hold on to your properties long enough through recessions you will begin to see a return on your investment. Over time rental prices will be able to increase and the value of your property will increase should you wish to sell.
As a lot of your money will be tied up for a while you may struggle if the housing market slows down, it is, therefore, a good idea of investing in different ways and kinds of property so you diversify your portfolio.
Always seek advice before making major decisions.