Why to invest in property?
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January 26, 2020
Now the conservatives have won the election 2020 could be a good year got investment in property
February 5, 2020Real estate can offer strong growth opportunities
Within carefully considered markets, real estate can offer strong growth opportunities, high financial returns and maintain a level of stability that makes it a low-risk asset in one’s investment portfolio. When supply is greater than demand, prices fall. When demand is greater than supplies, prices rise.
Reasons:
Steady Returns
- Safe-haven property markets offer reliable capital growth and regular yields
Diversification and low volatility
- Property assets are often less impacted by prevailing economic forces and retain their tangible asset value
Asset
- Property investment can be utilized for income, tax planning, education funding and of course retirement planning
Oftentimes, the decision to buy an investment property is the desire to leave a legacy for their children, the pride of owning a property and become financially independent.
Why invest in residential property?
People will always need a place to live, and this factor alone makes residential property a more stable investment. Moreover, if the location has been carefully considered, capital growth can be good for residential property. Residential property investment also offers a greater level of familiarity for potential investors and requires less experience. While gains could be less, these investments are generally considered to be more stable, particularly in a down market.
Would you invest in a ready-made or in an off-plan property?
Buying off-plan property is that you need to trust floor-plans, blueprints and artist impressions to know how the product will look. It is important to research who you are buying from and the developer’s track record. Buyers must have confidence in a project and the developer behind it, as there is a possibility that issues can arise between plan and completion. The significant advantage of investing in off-plan property is that it can be less of a financial burden for investors. Once you have the money for a deposit, further payments may not be needed for some time, and payment plans can be attractive and flexible, giving the purchaser time to save, without having to make substantial payments upfront. Multiple payments of smaller amounts can allow investors to purchase a property that they may not have been able to afford as a ready-made property, as more capital would have been required upfront. While rental income on off-plan properties must wait until completion, capital gains tend to be higher, as long as the area, facilities, amenities, developer and the price are all right. In comparison, buying a ready-made property means the investment costs are typically higher, requiring a larger down payment, usually upfront when compared to purchasing an off-plan investment. Generally, capital appreciation is lower, though this depends on the market. There can be other associated costs with buying ready-made properties. With older pre-owned residences, upgrades may be needed before they are ready for the rental market and maintenance costs are often higher.
How to avoid common mistakes made by first-time property investors
Whether you are a first-time buyer or an experienced investor, purchasing a property as an investment leaves you vulnerable to common mistakes that many buyers’ makes.
Ways to avoid the common mistake:
- Always do your research and due diligence
It is important to do your research on the market supply and demand data, sales and rental figures, growth projections and on more technical aspects that can make or break the profitability of your investment. Investors should also conduct research when investing in foreign markets for legal structures and tax implications. Lastly, don’t forget to check out the cost implication during the selling process. - Look at the bigger picture
Set financial goals with regards to where you want to end up and consider how to achieve them. These will help decide how, where, when and what you should invest in to achieve the best outcome for you. - Seek a professional partner
Investing in foreign or unfamiliar markets can lead to investors feeling lost. There are professionals who have been through the process many times before and seeking their advice can offer comfort and confidence before committing to an investment. - Prepare for all eventualities
Cash flow management is key. It is important to prepare yourself and be educated about all costs and if you will be able to finance it.
Always remember that property investment is not an overnight way to make money, it takes time to make money, and you should be prepared for any number of diversions the property investment journey can take you on along the way.
How to find a promising property market to invest in
When it comes to residential property, not all investment opportunities are created equal. There’s no need to only explore opportunities in the areas that are close to home or that you're most familiar with.
Factors can help determine the investment case and predict the future growth of a property market.
- population growth
- vacancy rates
- regeneration
- connectivity
- amenities and institutions
- unique features
How to choose the right investment
Looking at the overall information for a property is crucial. Factors such as location, price, projected rental yields, connectivity, and unique selling points should all be considered. Two similar properties located close to one another might appear to have few differences but upon closer inspection can have very different features and investment potential. Consider the amount you wish to invest, the make-up of your existing portfolio, your attitude to risk: these should all help to inform your decision and vary greatly from investor to investor.
What property investor needs to know about rental yields?
Rental yields tell us the income a property generates as a percentage of its cost. High rental yields may suggest good investment potential as the cost may be low while rental income is high. However, it is possible that the yield is high because of falling property prices as opposed to rising rents.
Lower yields might indicate potential rental growth in the future or strong capital growth, which could result in better overall return.
While rental yield figures help, it’s important to remember that rental income can fluctuate. Current or historical rental yields may not be accurate indicators for future performance, particularly in a market where, property prices are increasing rapidly, but rental rates are staying relatively level.
What to consider when looking at Rental Yields?
It’s worth considering what has happened in an area or market over the last 12 months, or the period since data was last collected, and whether there is anything that could have severely impacted rental or sales prices. Gross rental yields don’t take into account the various expenses and costs associated with purchasing and owning a property. Therefore, high rental yield may not be an accurate representation of actual returns. It’s often more useful for potential investors to calculate net yields when assessing their financial commitments and to consider the sustainability of owning an investment property.
What is a good rental yield for your buy-to-let investment?
Overall, while rental yields are an important consideration, they are only an indicator and should be considered alongside many other factors. If you are interested in managing an investment portfolio that’s going to perform well, capital growth is a key factor to also consider alongside rental yields.
When is the best time to sell your investment property?
As with most property investment decisions, when to sell depends on an individual’s circumstances. As a general rule, it is wise to maintain ownership if you can, and always keep an eye on the market you’ve invested in so that you can get the opportunity when the property value rises and by that time you can get advantages. As a first-timer property investor, you need to seek professional advice and ask questions that are on your mind that you can fully understand.
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