Top 10 property investment tips

Having worked as property managers in London for so many years, we’ve collected in this post our top 10 property investment tips. We hope they can guide your choices to purchase the best investment property solution.

1. Choosing the right property at the right price

Investing in the property market is usually all about capital growth. So, choosing a property that is more likely to increase in value is the most important decision you will make. For this reason, buying at the right price is absolutely critical.

It is best to search for an opportunity to acquire an asset below its real market value if you are patient and knowledgeable. The key for you is to do your research, work out what everything is selling for in and around the area. Then, you’ll discover that soon you’ll become very good at working out what a property is worth. You’ll know a bargain when you see it. Never consider purchasing a property in an area that you are unfamiliar with. If you do find a property that you like and are unsure of its real value I would suggest contacting an independent surveyor and ask them to survey on the market value of the property. Always focus on making the right investment choice financially.

Ensuring that you have a steady rental income stream is also vital because this cash flow will make the property more affordable and provide a regular income from day one.

Different classes of residential property – flats, houses and land – can outperform each other over time. For example, vacant land will provide no rental income but may appreciate more quickly if purchased in an area with limited supply. Some areas offer higher rental yields, but it is important that you do your homework as often these properties provide lower capital increase on the properties.

It is also important that your property suits the demographics of tenants in the area. For example, if it is near a university more bedrooms will be in greater demand than a big backyard for kids to run around. A family home that is close to schools and parks on a quiet street will be more desirable than a property on a busy road.


2. Do your sums – Cash Flow is always king!

Investing in property is a proven path to long-term wealth. However, you should consider it a medium to longer term type of investment. So you’ll want to make sure that you can afford to maintain your mortgage repayments over the long term. You should be in a position to keep your investment property until you are good and ready. If you were to encounter some financial stress, this could force you to offload the property at the wrong time or for less value.

Once you own an investment property it can be quite inexpensive to keep it and service the loan. That’s because you earn rent and get a tax deduction on many of the expenses associated with owning the property. Remember that over time rents to tend to increase as does your own income – so expect things to get easier over time.

Here is an example of what it might cost you to own an investment property. We recommend that you look at cost of servicing the loan on an after-tax basis, this way you can put the cost in real terms for you.

Make yourself aware of taxes involved in property investing and add these into your calculations. Advice from your accountant is vital in this regard as these can change over time. Stamp Duty, second home tax and Capital Gains Tax need to be taken into account. Remember that interest rates can vary over time. Anyway, the good news for property investors is that in times of rising interest rates you can normally expect to be able to increase the rent.

 


3. Find a good property manager and let them do their job

A property manager is usually a professional in their field. Their job is to keep things in order for you and your tenant. They can help you with ongoing advice and help you manage your tenants. They can help you get the best possible value for your property. Also, a good property manager will let you know when you should review rents and when you shouldn’t.

The property manager should be able to give you advice on property law, your rights and responsibilities as a landlord – as well as those of the tenant. They’ll also take care of any maintenance issues. Anyway, you should approve all incurred costs (other than certain emergency repairs), in advance.

The property manager will also help you find the right tenant and make sure they pay their rent on time. It is important also that you don’t interfere too much with tenants. There are laws that give them rights, so always try to respect them. You should, however, make regular independent inspections of your property to make sure that the tenant is looking after your investment. Always go through your agent and give plenty of notice.

The good news is that the cost you pay to your managing agent is usually a percentage of the rent paid, is deducted from the rent and is tax deductible.


4. Understand the market and the dynamics where you are buying

Consider what other properties are available in the immediate area. Then, speak to as many locals and real estate agents as you can. They will let you know if they consider one side of a street superior to the other and why. Make sure you do the legwork and consult professionals you can trust. Accessing independent information from a source can give you information on average rents, property values, demographics and suburb reports.

It is also a good idea to find out what changes may be happening in the area. For example, a major construction next to your property could make it harder to find a tenant at the right price.


5. Pick the right type of mortgage to suit you

There are many options when it comes to financing your investment property. So, get sound advice in this area as it can make a big difference to your financial well-being. It is surprising how many people spend too much time researching mortgages in an attempt to save a few pounds a month. Instead, they do not spend enough time on researching their local property market where much bigger gains can be had.

Interest on an investment property loan is generally tax deductible, but some borrowing costs are not immediately deductible and knowing the difference can count. Structuring your loan correctly is critical and this should be done with the help of a trusted financial advisor.

Whether you choose a fixed rate mortgage or a variable rate mortgage will depend on your circumstances. However, consider both options carefully before you decide. Over time variable rates have proven to be cheaper. Yet, selecting a fixed rate loan at the right time can really pay off. Remember that rate usually rise in line with property prices, so increasing interest rates are not always bad news for property investors as they have more than likely had a win on the capital gains front.


6. Use the equity from another property

Leveraging equity in your home, or equity from another property investment, can be an effective way to buy an investment property. Equity is the amount of money in your home that you actually own. It can be calculated by working out the difference between what your property is worth and what you owe on the mortgage.


7. Negative gearing

Negative gearing can offer property investors certain tax benefits if the cost of the investments exceeds income it produces. You can deduct your borrowing and maintenance costs of the property from your total income. If you are actually making a loss on the property, the advantage is that the loss can be used to reduce the amount of the tax on your other earnings.


8. Check the age and condition of the property and facilities

Even with negative gearing, needing to replace the roof or hot water service in the first few months of ownership could make a significant difference to your profits and really damage your cash flow.

Therefore, it is advisable to engage a surveyor, gas engineer, an electrical engineer before you purchase (and then once a year) to conduct a thorough inspection of the property to find any potential problems.

Also, it is wise to use a qualified tradesperson who is licensed to carry out the work and who has adequate insurance to protect you against poor workmanship.

It’s not always a bad thing to buy a property that is not in peak condition. In fact, you get the opportunity to improve the value of the property by fixing the place up. This can increase your returns for both capital growth and rental income.


9. Make the property attractive to renters

Go for neutral tones and keep the kitchen and bathroom in good condition. You’ll find that you will attract better quality tenants if you have a well-presented property. In fact, the last thing you want is a bad tenant.

Another point that is subject to debate is whether you should buy a property that you’d be happy to live in yourself. Some people believe this will mean it is appreciated more and some people don’t care. However, think about differentiating between your own home and your investment to avoid becoming overly involved; remember it is the home of your tenant and not your own.

For me, it is important to remember the day will come when you’ll want to sell the property. If a home is appealing to not only property investors but also owner-occupiers, you’ll have a wider market for the property. This will maximise your selling price. I think that owner-occupiers are willing to pay a little more for the right property. In fact, this becomes a more emotional rather than a logical purchase.


10. Take a long-term view and manage your risks

Remember that property is a long-term investment and you should not rely on property prices rising straight away. The longer you can afford to commit to a property the better. Furthermore, as you build up equity, then you can consider purchasing a second investment property.

Finally, remain aware that unlike shares or managed funds, you can’t just sell part of your investment property if you need money. In short, be cautious, but consider that record migration levels and a rental property shortage are crucial factors favouring investing in property.

Read more: Where to invest in property: the best commuter areas of London

For more property investment tips and if you have any questions regarding how to invest in London, please contact Pelin Martin on 02089947327 or on pm@bluecrystallondon.co.uk

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