Clearly, property is an incredibly popular area for those people looking to grow their personal investments. While it can be an expensive and sometimes difficult area to start out in (particularly compared to investment options such as stocks and shares or bonds), property also offers investors potentially very good returns on their money – often over both the long and the short term. It is also one of the very few areas of investment where the investor themselves can directly and practically contribute to the growth of the investment itself – something that is impossible with other forms of investment such as the financial markets.
So, with all that in mind here are our thoughts on just a few of the things that it pays to think about when you are entering the world of property investment.
Have a plan – and stick to it!
Knowing why you are choosing to invest in property sounds like an obvious first consideration but it is still well worth emphasising the importance of having a set of clearly defined goals before you commit your money. Do you want to grow your personal investment over the long term before downsizing and cashing in on an anticipated rise in the market value of your property? Or, are you looking at getting a quick, short term return on your investment, by buying a fixer upper, paying for improvements and then selling it quickly at a profit? Or, do you want a steady, regular income from a rental property? All of these are viable options, but it is essential that you decide which one you want to go for, because it will help you to shape your initial investment decisions in a more focused and ultimately more profitable way.
Know how much risk you are prepared to take on
Clearly, your next big consideration comes down to finances. If you are going to make money out of property – whether it is through one astute purchase or a series of them to build a valuable portfolio – you need to have a sense of what you are willing and able to risk.
In this sense property is exactly the same as any other kind of investment. Different properties will represent different levels of risk, and the degree to which you are prepared to take these liabilities on – whether in the form of financial loans or the risk attached to the ongoing costs of the properties themselves – is key to finding out where you can make money safely.
So, think hard about where your financial priorities lie. Are you prepared to potentially take a cut in your standard of living now to finance an investment that will only realise its full potential later on? How much can you afford to lose, if the market drops dramatically? And how much money do you have to invest in the asset itself, in order to add to its value?
Always try to build value, not debts
This point about adding value is key: that the best way to make money on a property investment is to make sure that you are always adding value to it. Again, this seems obvious, but it can be easy to lose sight of sometimes as you try to grow your portfolio.
So, every time you buy a property, always look at it in terms of the overall journey you are on. Are the financial liabilities you are taking on adding to the value of your portfolio? Are you building on the investments you have already made, or are you beginning to detract from them by burdening yourself with more debt? Are there other ways that you can raise the capital required to buy another property, that don’t increase your personal debt or don’t ultimately remove value from the overall portfolio (for example getting a loan secured against existing equity, or selling one property at a profit to buy another).
Again, every step you take in your property investment journey has to contribute directly to your overall investment goals – so if a property you are interested in doesn’t do this, our advice is to walk away.
Ultimately, property is still a great way to both invest for both the long and the shorter term – but as with any investment it all comes down to the amount of research you are prepared to do before you commit.
So, the bottom line is this: know your market, know how much you are prepared to risk, and know where you can add value to your investment without taking on too many additional risks.