Choosing to invest in a property is a big decision, but it is just the beginning. Having set your sights on entering the property investment market, there are much to consider before you can be sure you are making the best investment for you. Below are the top-ten tips that will help you to make an informed decision on finding the best investment property to suit your budget and requirements.
Tip 1: Decide early if you want a long-term or short-term investment
Before you go any further, you need to decide what kind of return you are looking for. Sometime the best investment property is not the one with the highest return. Do you want a long-term investment that will generate a rental income over time and eventually result in capital growth? If so, then you are best to consider buy-to-let properties. If investing in a buy-to-let property, you can go for a property that is in good condition and is ready to house tenants. The rental income can be used to cover mortgage repayments and maintenance costs. Buy-to-let investments are considered long-term as capital growth generally relies on house prices increasing across the market during the time that the property is being let. Such investments are often seen as alternatives to pension funds. The investor will hold on to the property until prices have risen enough for them to make a significant return through resale.
The alternative to long-term buy-to-let investments, is investing in properties that require significant renovations or development to achieve a higher resale price. Such properties can often be bought relatively cheaply. If the renovations can be done within a reasonable budget and timescale, the investor stands to make a good return from a quick resale. The kind of investment you wish to make will determine what you are looking for in a property.
Tip 2: Don’t go it alone
Get advice from experts. This will most likely mean talking to qualified estate or lettings agents. These people deal with sales, purchases and lettings every day. They have in-depth knowledge of the current market trends and will be able to advise you on hot areas for sale and rental potential. They also know what potential purchasers or tenants tend to look for in a property. Informed advice from and expert can make all the difference in choosing the best property for investment. Treat your estate agent as a mentor.
Tip 3: Location matters most
There is an old adage that says it is better to have the worst house in the best location, than the best house in the worst location. This has been proven to be true time and time again. Certain areas are prime hot spots for sale and rental activity. Prime locations for rental are near universities (catering to students) and city centres (catering to young professionals). Sales are often hotter in suburban areas with good transport links, as these are favoured by families. Do your research into current popular locations and any anticipated upcoming hotspots based on planned development works.
Tip 4: Have money lined up
When you find an investment property that meets your requirements, you will want to act fast. It is important to act decisively when a prime opportunity presents itself. You should also have extra money set aside, on top of the capital needed to make the purchase. In the case of buy-to let investments, ensure you have enough money set aside to cover the mortgage repayments for up to six months, as it can take time to find a suitable tenant. If you are investing in a property for resale, make sure you have access to enough funds to cover renovation works. You will want to get started as quickly as possible, as the longer the process lasts, the more you lose in mortgage repayments and other costs.
Tip 5: Be tax savvy
Even if you have enough money to purchase a property as a cash buyer, it is sometimes advisable to take out a buy-to-let mortgage, as there are tax benefits associated with this. If you are letting out a property, be sure that you are aware of allowable expenses that can be deducted from taxable rent receipts. If buying a property for resale, you may be able to nominate it as the residence of yourself or a partner, meaning that when you sell it you could possibly avoid paying less Capital Gains Tax.
Tip 6: Use your position
When investing in property that does not require the sale of your own home, you will not be part of a chain. Sellers looking to complete quickly may be willing to reduce the purchase price of a property based on this advantage. Put in low offers and use your position as a tool for negotiation.
Tip 7: Be ruled by your head, not your heart
Do research into the market and make decisions based on facts and statistics. Do not buy a property just because you would like to live in it, or because the area in which it is located holds pleasant memories for you.
Tip 8: Make a business plan
Plan out every aspect of a potential investment. Decide in advance how much you are willing to pay to purchase the property and set a budget for renovations or improvements. Make sure your overall budget considers all secondary costs associated with the purchase, sale or letting of the property. Then plan how you will market the property and work out how much return you will need to make. Decide where funds will come from. If you have real facts and figures in place, you are much less likely to make a bad decision.
Tip 9: Know your Market
Decide on what type of tenant or buyer you wish to target, then research everything about this market sector. Find out what these people want most in a property and location. Research how much different properties in different areas usually go for. Look at recent trend sin prices; are they rising or falling? Look also at predicted trends. Gather as much information as possible to allow you to make the best decisions.
Tip 10: Be aware of potential pitfalls
Set out the worst-case scenario. What happens if nothing goes to plan? Can you live with the consequences? Can you afford the investment if it all goes wrong? If not, you might want to make some tweaks, or even rethink your whole plan. You can never guarantee success.
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