Owning property in Ireland and the UK can be a profitable experience. Buying an investment property is one of the steps towards a more financially secure future. But it also poses risks.
The property market is lucrative but it reacts to economic and political factors that leave it open to volatility. It is more stable than financial markets (stocks, bonds and Forex) but it can be challenging for a first-time investor. You need to have a thorough understanding of what you can and cannot afford before trying out property investing.
You need to invest wisely and understand the basics of property management. If you’re thinking about buying an investment property, here are five essential investment tips worth listening to.
Understand Your Investment Goals and Strategies
Different people have different investment goals and your strategy must be tailored to yours. You need to sit down and determine your short-term and long-term financial goals as well as your tolerance to risk. All of this will guide the type of properties you should consider.
For example, if you’re investing in real estate for the purpose of securing your retirement, rental income is preferable since it can help with putting some money aside and retire earlier. However, if you’re looking to invest in real estate for your children, then they may not want the property until they are older and more established at their jobs.
That being said, you need to remain realistic about the returns you expect. If you expect to generate passive income from the investment property, then it may not make sense for you to invest in properties that require significant renovations or repairs before they can be rented out. You should look at properties with low purchase prices and high rental yields as this means you can potentially invest in more properties.
Know Your Market
You should think about the location of the investment property in the context of market conditions as well. You want to buy in areas where people want to live. Since there are many areas that can fit that description, you need to take into consideration other factors as well. Access to schools and kindergartens, hospitals, and a good transport network are all deciding factors when people rent.
Research the relationship between home prices in the area the property is in and the average rent. Look at listings and get in touch with landlords posing as a tenant. This can give you valuable information about home features and rents. Keep in mind that markets change and rents reflect those changes.
Choose your location
Real estate investments are all about location. This applies to both buyers and renters. The location of the property determines many things – from its desirability to its selling price, potential rent and occupancy rates.
Typically, families with children are likely to look for a rental home that is close to a school or a kindergarten. Whereas young working adults prefer to rent properties in close proximity to work as commuting is becoming an issue.
It may cost you more to buy investment property in an area of high demand, but you can charge higher rents to make up for it.
Explore financing methods
Thinking about how you want to finance your investment property is important. This means shopping within your financial limits. Choose an investment property that you can afford to own, manage, and maintain.
Figure out how much of your money you can put down as a deposit and commit on an ongoing basis. Some people find it helpful to work with a professional advisor to come up with an accurate budget. You can also quantify the cash flow your investment will produce so you can be well-informed before you push through with it.
Investing in rental property doesn’t require a large lump sum upfront as you can take advantage of mortgage financing. For example, instead of paying £100,000 in cash to buy a single property, you may decide to finance two properties with a £50,000 down payment on each.
However, you need to carefully consider your situation before doing this. The net profit from each rental will be lower because of the monthly mortgage payment. It will reduce your cash flow. In the event of one or more tenants moving out unexpectedly or getting behind on their rent, would you still be able to afford your mortgage payments?
Try to calculate your total costs as accurately as you can. Take the current property taxes, but check the history of tax increases in the area where you’re buying. You need to factor in immediate and long-term repairs, maintenance costs and major equipment replacement, so you can try to get estimates for those as well.
One way to figure out your financial limitations is by making a marketing budget. As a landlord, you will need to fill vacant units as quickly as possible. Rental advertising remains the best way to do that. You need to estimate vacancy and credit costs moving forward. For example, living in a rental causes wear and tear. What will it cost to do repairs or renovations before the next tenant moves in?
Think about how often you anticipate vacancies. This depends on the location to some extent. If you live near a college or university and rent to students, you might see turnover every year. Also factor in the cost of financial hardships. They can happen to anyone, causing late or even missed rent payments to you.
Visit Properties for Sale
When you are researching investment properties you need to visit them in person. Have the real estate agent take you to several properties. You also want to visit some you are not interested in. Visiting properties within your price range will give you a better view of value in the neighborhood and the ability to see what is available and how it will appeal to your intended renters.
Use this opportunity to discuss the nearby properties with your realtor. This includes local businesses, the school district and public transportation. They will give you plenty of information on the development potential and living conditions of the area you are considering investing in. Use this data to support what you discovered on your own tour of the neighborhood.
Even if you want to buy an investment property as soon as possible, don’t put time constraints on yourself. Take your time to find out as much information as you can. The neighborhood is often as important as the specific property to determine if you will make a profit on your purchase.
How to Get the More Out of Your Property Investment
When you’re buying your first investment property, there is a lot of information to go over and take into consideration. Working with a real estate agent can give you a strategic advantage as they have knowledge of the markets and can offer recommendations for other professionals whose services you will need down the line. Attorneys, insurance agents and appraisers will all need to be brought in at some point during the investment process.
Real estate agents know the ins and outs of the market and can create a strategy to locate the best property that generates consistent income and increases in value. They can even recommend a property management company to manage your property portfolio later on. This means not having to worry about finding tenants as they take care of that. Property management companies will also respond to any issues tenants have, saving you time and money.
Making the most of your property investment means being smart about the whole process. Make it as hassle-free as possible by taking a step back from the functional duties and demands of owning a rental property. Employ the services of professionals who can help you find the investment property that best meets your financial goals and strategy.