Property investment is a great way to make your personal financial reserves work hard for you – now and in retirement. However there is a lot of hype and many myths surrounding property investment. So what works? And what doesn’t?
Vicki Wusche, author of ‘Make more money from property’, looks at the10 crucial factors that will guarantee you make money when investing in property:
Be clear on your objectives. Are you looking for cash flow or capital gain? Are you planning for children or are they ready to head to university? Do you just want more cash flow for holidays or to prepare for retirement? Why you want to invest will help you decide the best strategy, area and property type.
Don’t be swayed by other people – do your own research. Start with areas you know, research property prices and potential rental markets and double check that with your current knowledge.
Don’t be tempted into a capital investment game – it’s still gambling. While the media reports that house prices will rise, the government will intervene to manage the speed of growth. Plus, wages have not increased, so how will people afford to buy?
Interest rates will rise. Ensure that you can ride the interest rate increases before you buy. Calculate the cost of a mortgage at 5 per cent and 6 per cent, even 8 per cent so you know exactly where you stand before you start.
Get a good team, from pre purchase (you need to be quick) to pre tenant (focus on the tenant) to post purchase (ongoing monitoring). If you don’t feel confident about making the right decision – then get help. Speak to a professional property sourcing agent. They should be insured, registered with The Property Ombudsman and have properties that they have bought for themselves and clients.
Underestimate your returns, make allowances and contingencies for voids periods and the cost of repairs. Assume 2-3 months a year are void (you will do better than this but be cautious with your figures and expectations). Make allowances for repairs and maintenance at approximately 20 per cent of the rental income in the first year.
Constantly monitor and manage the property once let. Drain pipes and gutters cost only a few pounds to repair and fix but can cost thousands if left to leak on the property. A monthly phone call to a letting agent to chase unpaid rent or the state of an empty room or property takes minutes but again will save hundreds of pounds or more in lost rental income.
Aim to provide a long term home for tenants – this will reduce voids. A family home near a school, a high quality professional HMO space for ordinary working people will ensure your tenants are happy and want to stay.
Buy with your tenants in mind and refurbish with them in mind. A family will want a garden. Consider off street parking. Buy right, and refurbish right.
Every pound spent on the property after purchase must increase the value of the property or increase rental return.
Keep a cash reserve in the bank to cover emergencies like voids or repairs.
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