Investing in Property: A Beginner’s Guide
Getting Started Investing in Property
Property investment is fast becoming one of the most popular ways to put your savings to work. In an increasingly volatile market, more people are turning away from stocks, shares and poorly performing savings accounts – and instead, are investigating the opportunities of investing in bricks and mortar instead.
If you’re curious to find out about investing in property, and want to know how to get started, this guide will provide all the basic information you need.
Types of Property Investment
Before discussing how to invest in property, it’s important to understand the options available to you. These are:
- Buy-to-let. Investing in buy-to-let property provides potentially two forms of income – rent generated from tenants, and also capital growth, if the value of the property increases.
- Property development. Another alternative is to invest in property in need of structural or cosmetic improvement, with a view to selling it on at a higher price and making a profit.
- Property fund. This is an indirect form of investment. If your fund performs well, it will return a profit; either in the form of dividends or rental income.
How Do I Get Started Investing in Property?
Here’s a step-by-step guide; explaining how to get started.
- Learn about the market. Before investing in any form of property, it’s important to understand the market. For example, if you plan to invest in buy-to-let accommodation, you should talk to a letting agent, and find out about the location you intend to buy in, plus the target market. If you’re planning to invest in a property fund, find out exactly what sort of fund it is, and how it works – there are many different forms!
- Factor in all costs. There are more costs involved with buying a house than just the asking price. You’ll need to factor in a range of other fees. For example – stamp duty is set to change in April, so it’s important to include this in your budget. If you’re developing a property, you’ll need to include structural and cosmetic improvement costs. A property fund is likely to incur agency fees.
- Mortgage payments. If you’re using a mortgage to buy the property, be aware that rates are different for buy-to-let mortgages, and typically, lenders will want your rent to cover 125% of repayments. You’ll also require a larger deposit.
- Identify a target market. If you’re buying to rent or sell on, you’ll need to identify a suitable target market. For buy-to-let properties, this is likely to be students, young professionals or families -and it’s worthwhile finding out which demographic will deliver the best ROI. If you’re developing a property, think about who you’ll be selling it on to – what will appeal to them, and to what standard will you need to finish the property?
- Location! Getting the location right is an integral part of investing in property. Tenants generally have a specific location in mind. This might be near transport links, close to local amenities, or next to local schools. Likewise, when you’re developing property, think about the desirability of the area – as this will affect the price.
‘I’m Not Sure How to Start Investing in Property!’
It’s common to feel apprehensive before you start investing in property, particularly if you’re unfamiliar with the market. Discussing your options with a letting agent can help, as can talking to other investors, who will be able to offer insight into their personal experiences in the industry.
Here’s a few pitfalls to be aware of before you get started:
- Investing all savings into one area. If possible, try to avoid investing all savings into one property or fund. Although investing in property is considered one of the safer forms of investment, the market can change, and it’s important to be financially prepared for all future outcomes – including the worst-case scenario as well as the best.
- Jumping in too quickly. Some property purchases are time-sensitive, particularly if there’s a lot of competition in the market. However, few things are worse than being saddled with a property that doesn’t offer good returns, so it’s important to ensure you make the right decision. Likewise, when looking for mortgages, explore what’s on offer. Many high street banks now offer buy-to-let mortgages, so there’s plenty of competitive rates available.
- Management woes. Developing or renting a property presents a lot of opportunities, but is labour intensive too. Tenants require careful management – as do development projects. If you’re concerned about this, work with a letting or property management company, who can take on the responsibility for you.
Getting Started in Property Investment
If you’re ready to get started, start doing your homework, and talk to local property management and letting companies. Then, when you feel confident, start exploring the market and seeing what opportunities are available to you.