For many people, owning property is one of the most important goals in life and an important barometer of success. For businesses too, having a base of operations outside of your kitchen is a mark of legitimacy.
The simple idea that everyone needs a place to call home is the prime motivating factor that makes property such an attractive investment. Alongside cash, bonds and shares, property is the most common type of investment, and one that people often think is their ticket to a comfortable retirement.
So what are the key points of consideration for someone thinking of putting their money into bricks and mortar?
Common misconceptions
You need to be clear on what you want to achieve before you begin to invest in properties. The process is not without risks and mistakes can be costly.
Some common misconceptions that people have about investment properties are:
- You are unlikely to be able to buy a house and sell it quickly for a higher price. Property investment is a longterm commitment and you are going to need large growth or a long time.
- Many people have previously attempted to use cash generated by releasing capital through remortgaging their properties. Trying to do this repeatedly leaves the investor at the mercy of property price fluctuations, changing loan-to-value levels and changes in remortgage costs.
Despite the fact that demand for property is near constant, investing in property is inherently risky. Demand rises and falls in different locations, outside forces cause prices to spike and dip and maintenance costs can begin to spiral.
Knowing what you want the outcome to be is an essential part of the process.
Income or Growth?
Another piece of the property investment puzzle is the difference between growth and income investments.
People tend to invest in property for two principal reasons; to generate a regular income, or to grow capital and make a good return on the original investment. Both of these outcomes require a slightly different outloook and approach from the investor.
If you want a regular income from your property, you are gong to need robust tenant demand in your area. The key concern here is generating regular payments that are enough to cover your tax obligations, any other payments (such as mortgage) you need to make, as well as providing you with a profit.
If you are looking for your property to help you grow your capital, you are essentially making a speculative purchase based on the wider market, which can be risky to say the least. You are also balancing local demand for properties in your area with what they are likely to be in the future. Ultimately you going to need to make a large return on your original investment for the whole ordeal to have been worth it.
Things to remember
- Property is a long-term investment so it is likely you won’t be able to extract your money quickly.
- There are a number of buying and selling costs that need to be factored in, such as stamp duty, surveyors’ fees, solicitors’ fees and conveyancing costs.
- Property investment is potentially very demanding in terms of time, energy and resources when it comes to management and maintenance.
- Recent changes to the taxation of residential property letting need to be understood.
If you use a mortgage or other form of loan to purchase the property you also need to be aware of earning enough to cover your repayments. Always account for the possibility that your mortgage costs and interest payments may rise in the future.
If you remember these points, take your time and consider every decision, you should be able to use your property portfolio in a way that is consistent with your longterm goals.
We have the expertise to help you achieve those goals. Contact us today to talk to a member of our team.