Image Credit: Pixabay
Sinking your money into property is one of the more tangible ways to invest your finances. As with all investment ventures, there are pros and cons.
Whilst property investment is perhaps one of the less risky avenues, you still need to prepare yourself to manage the costs of the property and the mortgage repayments. To set yourself up to invest in housing, follow these tips to place yourself in the best possible position to start making money off your property.
Where to buy
Deciding where to buy your property can significantly affect the returns you receive on your investment. Remember, you are not buying somewhere for yourself to live, so you do not need to worry about how it suits your needs. Instead, consider what renters are looking for in a house. For example, if you want to attract a family, ensure the property is close to schools.
It might be a good idea to look in an area you’re already familiar with, so you know the rough house value and any upcoming changes to the area that might affect property or rent prices. It is also easier to maintain a house closer to you than on the other side of the country or globe!
What to buy
You don’t necessarily need to buy a house in good condition or of high value. Investing in a slightly run-down building might allow you to add value to the home by fixing it up, ensuring that you will likely make a profit if you come to sell it. Although, if you are thinking of buying a house to do up, be sure you understand the potential future maintenance costs and factor them into your budget. Also, make sure you are getting it for a fair price — don’t overpay!
However, if you don’t fancy buying a fixer-upper, look for houses with good features, like several bathrooms or a large yard.
How to buy
Unlike other investment types, sinking your money into property doesn’t require specialist knowledge. You need to pick the right mortgage for your situation, such as a fixed rate or variable rate loan, depending on your risk aversion and ability to pay off the mortgage quickly.
If this is your second property to purchase, you can use the equity (the money you have already paid off on your current mortgage) as the deposit for your new mortgage. A bigger deposit allows you to access better rates as you have better borrowing power.
How to capitalize
The usual way to make money on a property investment is through renting. Your rental income depends on tenants living in the property, and you risk it not being enough to cover mortgage repayments and other expenses. Ensure that you understand the rental return on the property before investing.
You might also be able to capitalize on the property by selling it. House prices have seen an upwards trend in recent years, particularly if you add value to the property by renovating.
Expenses to consider
As mentioned earlier, you need to consider what expenses might occur and whether your rental income will cover these costs. Beyond the mortgage, there is also stamp duty and legal fees to think about. If you do plan to sell, you may also have to pay capital gains tax.
What to watch out for
While property investment is less risky than other investment avenues, you still may encounter some difficulties along the way.
One of the biggest challenges might be if you are to go through a divorce. Dividing property isn’t so simple as other settlements you might need to make. You must understand how to manage mortgage payments after separating from your partner. There are different options to consider, such as shared homeownership, a mortgage transfer, buying the other out, or selling.
Investing in property isn’t the easy path to making money, but it will be a worthwhile investment if it is done carefully with proper expectations and management. Careful preparation and research before buying will ensure a lengthy return on your investment.