6 Point Guide to Investing in Property
Safe as Houses. That’s a phrase we always hear, but is there any basis in reality? The short answer is yes, property investment is an area that rarely loses vast sums of money. Of course, there are exceptions to this, just as there are with any rule. The key is knowing what you are doing and investing in an informed strategy. Our six-point guide to investing in property will show you exactly how to achieve this.
Identify a Strategy.
Any financial plan must have a coherent strategy. Investing in property is no different from any other investment. The first thing we need to know is how long you intend to have funds tied up in a property. Is it a short turnaround you are seeking? This is usually achieved via buying a property with a view to renovation and quick re-sale. When we say a quick sale, we mean many months or even a few years, rather than decades. A longer-term strategy would be buying to rent out, this way we hold the property for several years. This yields the double advantage of a modest rental income that may provide small profits over and above the mortgage payments, but slowly builds up equity in an asset. Holding a property portfolio can make retirement much easier.
Find Out Mortgage Eligibility
Unless you are fortunate enough to be sitting on a significant level of cash, a mortgage is going to have to be acquired. We need to be careful what type of mortgage we have. If we are looking to buy property to develop and sell on. Or to rent out as a landlord, we will require a specialist mortgage that allows those activities. As with any loan, a mortgage charges interest. If you can afford to pay it off more quickly you will make more profit over the long-term.
Consider Tax Considerations.
We must be fully aware of what tax you will pay. Any income or profit will be subject to taxation. You should be aware of what type of tax will be due. And what level it will come in at. Is it capital gains tax, or regular income tax. This 1031 exchange infographic gives you some of the info you might need?
Residential or Commercial?
If we are going to buy to let, we have two options that are most common. We can buy a residential home to let out. Or we can buy a commercial property to rent out to businesses, such as a shop or warehouse. There are advantages to both kinds of letting. With a residential let, you generally have a closer relationship with the tenants. It is not uncommon to have regular inspections, whether carried out by yourself or an agency. You are also more responsible for repairs and upkeep, heating, appliances, etc. are usually the landlord’s responsibility. For a commercial lease, the tenant is responsible for more of the maintenance. You also are expected to have more of a hands-off approach, and regular inspections are uncommon. The disadvantage of this is that you might not be as on top of the condition of the property, and although the tenant is responsible for repairs, in the event of a company entering liquidation, it may be difficult to legally pursue them for anything in the event of things going wrong.
What Type of Tenants?
When renting, it is good to think about what type of tenants your property might attract? If you buy a budget-end property near a college. You are likely to have a good customer-base amongst local students. Purchasing a student residence would mean that you would have a steady stream of tenants, who would stay for a few years at most. If you have a house to let out in more in a residential area, you might find families as tenants who are likely to stay for several years.
In the Event of Non-Payment
When a tenant does not pay their rent, it can be for many reasons, yet your mortgage is still due. This can create a significant problem if allowed to continue for any period. It is essential to get on top of this immediately, get in touch and see why the payment was missed. Often this query can result in quick payment. If the tenant has come into any financial trouble, it is possible to find a solution that suits both parties. If the tenant is not co-operating, then legal action must be considered.