Investment Property: A Beginner’s Guide

30 July 2019
Investment Property

Investment property has become a byword for profit over the last few years. People look at investment property as their pension fund. They may have only bought their own home in the past but want to look to the future and make money from investing in property. Buying your own home is very different from buying something for investment purposes. You look at the property in a different way, and the dynamics are very different too.

There are two main ways that you can make money from buying a property –

  1. Buy the property to sell on at a profit
  2. But the property to rent out to tenants

So even here you have to look at the different dynamics at play. When buying a home for yourself, the consideration is how you can live in it. You can see from the above they you will need very different considerations to be a property investor. Lets look in a little more detail –

Investment Property

Buy investment property to sell for a profit

The first thing you need to think about here is price. You must do your homework as a property investor. You have to understand the market inside out, and this only comes from researching the price of property in your chosen area. Take a look at what you might buy and the demand that is there. If there are loads of 2 bedroom homes on the market and they are failing to sell, then you might want to move away from this part of the market and look at something else. Only research will tell you what will work.

Demand and supply are one thing, but price is the other element that you need to understand here. You will need to buy a property that has a profit left in it for you after –

  • Any fees needed to buy (solicitors fees, survey fees, etc)
  • Any refurbishment costs
  • Any sale fees (estate agent fees, solicitors fees, etc)

So you must know the likely sale price and factor in these costs to ensure there is a potential profit at the end. The price at which you can sell will determine how much money you make, if any at all.

Investment Property - do the maths

Buy investment property to rent out

Again you have different dynamics to consider here. although the price of the property is important (we all want a bargain) the demand for rental property by far outweighs this. If you need a mortgage to buy, then you want a tenant in as soon as possible – otherwise it will be you subsidising the mortgage. You need to do your homework and find out what the likely demand will be for the property and what rental return you can expect. You will want the money paid by any tenant to cover all the likely costs you incur, including –

  • The monthly mortgage payment
  • Any related insurances
  • The letting agent fees
  • Any repairs to the property

So you need to think about the property in terms of month-by-month rather than how quickly you can sell it. Make sure you know your figures or you could end up out of pocket.

You still need an exit strategy with a rental property. Even if you are going to hold it long-term, then you want to know how you will get your money back eventually. If the sale market is stagnant and looks poor long-term then you might want to reconsider your purchase. At some stage you will want to sell the property and release the capital you have invested – this only works if there is a strong sales market.

If you are looking to buy a property (or even sell one) then my range of books will help you understand the process and get the most from it.

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