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Looking to start growing a property investment portfolio? This overview introduces a few important things for those just beginning their investment story.
It’s undoubtedly one of the world’s oldest and most popular investments.
Property – bricks and mortar – can help you to deliver strong, consistent levels of long-term growth. It can also help you to achieve a regular income in the form of rental yields.
So, where to start? How can beginners get started in investment property and build a successful portfolio?
This overview outlines some of the key things you need to know before you get started.
Firstly, it’s important to establish the fundamental reasons why property is a trusted investment asset.
Unlike other popular investments, such as equities, property is a physical asset. You can touch a property, visit it, and live in it. Being able to do these things makes it much more tangible than owning a non-physical asset.
Crucially though, unlike these other investments, property’s performance is determined by supply and demand. It is much less exposed to wider economic fluctuations and events. Quite simply, people will always need a place to live.
So, provided you invest in property in an area with a high level of demand and comparatively low level of supply, your investment should help you to deliver strong growth over the long-term.
Finally, property is considered to be an important asset in any diverse portfolio. This is not only due to its ability to deliver stable, long-term growth, but also because property can deliver regular revenue in the form of rental yields.
For example, an investor with several equity investments may look to property as a hedge against exposure their shares might have to changing economic conditions. Should wider market conditions stunt return levels from their equities, rental income from a tenant in their property can continue to bring in a regular income.
Of course, no investment is risk-free, and property is no exception.
Like most assets, the value of property can increase and decrease. So too can rental values. These can be determined by many factors, from supply and demand levels, to inflation and the health of the national economy.
It’s important to view property as a long-term investment. Not only is this because this is how you will achieve the highest returns, but also because it will help you to ride out any fluctuations in property values.
Another thing to consider is property’s lack of liquidity. Should you need to release a lump sum from your portfolio, property isn’t necessarily an asset that can be sold quickly.
The buying and selling process of any property can be time consuming, with the pace of progress susceptible to a wide range of extenuating factors. So, rather than having all your money tied up solely in property, you may want to consider adding a mix of assets to a large investment portfolio with varying levels of liquidity.
The answer to this question varies depending on the type of property you’re investing in, your investment goals, and many other individual circumstances.
But, in general, some of the main things you will need are:
If you’re a cash buyer, the amount you need will depend on the location of the property you’re buying. You may wish to invest in one property in an area of higher average prices, or buy multiple properties where average values are lower.
If you will be funding your purchase with a mortgage, you will need a sizeable lump sum to use as a deposit to gain leverage. Also, you should ensure you have a good credit score and healthy finances if you are to be successful in obtaining a mortgage.
Whether you’re buying an existing property from an estate agent, or an off-plan property from a developer, it’s important you have a trusted advisor working for you.
They will help you to clearly – and impartially – assess which investment is right for you, ensuring you make the right decision. Should you proceed with an investment, your advisor will also work for you throughout the contracts process, working to protect you at every stage.
Before deciding on a property, it’s imperative that you do your homework.
What are the local market averages for similar properties in the area? Is it a property type in high demand? Is it within a property sector that is well placed to deliver growth over the long-term?
If you don’t study market conditions carefully, you may end up with a property that struggles to deliver the ROI figures you’re looking for.
Yes, patience. At every step of your property investment journey, you will need to take your time.
That starts by not buying on impulse, rather taking your time before committing.
But then, when you have a property, you need to continually remind yourself that you’re in this for the long-haul. If you want an asset that will deliver high rewards quickly, you should choose an asset class such as equities, instead. However, if you’re willing to own this property for the foreseeable future, you will enjoy a regular income and strong levels of growth in the years to come.
It makes sense to draw up a checklist of all your investment requirements before beginning your property search:
This goes beyond just the purchase price of the property you’re interested in. You must ensure that all the costs associated with buying a property are covered in your budget, too. This includes agent/developer fees, legal and conveyancing fees, in addition to all the common property taxes you will be required to pay.
Budgeting for all of these additional fees from the beginning can help you to avoid any unexpected shocks further down the line.
As already mentioned, property should be viewed as a long-term investment. So, what do you want to achieve from a property investment over a period of years?
Is generating a regular income the most important aspect for you? Or is achieving the highest possible capital growth in the long-term more of a priority?
This, combined with your budget, should help shape your decisions at every stage of your investment journey.
What type of property is most likely to help you achieve your goals?
Buy-to-let property. Build-to-rent property. Purpose-built student accommodation.
All property sectors share similar qualities, but they also boast their own individual advantages, too. Understanding all the pros and cons of each sector will help you decide which property type will work best for you.
If you plan on renting out your property, you will need to decide who will carry out the management and maintenance.
Is this something you plan on doing yourself? If so, you will need to carefully research all landlord regulations to ensure you have all the necessary paperwork to legally rent out a property; your legal advisor can guide you with this. On a more basic level, you will need to be honest with yourself with the amount of free time you have to sufficiently undertake all the legwork that comes with being a landlord.
Alternatively, you may wish to choose a letting company to undertake all management jobs for you, or you may wish to choose a fully managed investment direct from a property developer.
Whichever you decide, you should carefully assess how the management option you choose will help you to achieve your goals and maintain the long-term strength of your investment.
You will want to ensure that the location you are choosing is well placed to deliver high, long-term returns.
Check historical property price charts for the local area and chart the growth. Research population figures versus property supply levels and calculate the potential supply to demand ratio of property in the area.
Crucially, assess what type of property is most in-demand from the local population. For example, student accommodation will be in high demand in an area close to a university, while purpose-built rental apartments will be attractive to city centre tenants close to key work and transport hubs.
As mentioned, you should seek independent financial advice before proceeding with any property purchase.
If you decide that property investment is the best financial decision for you, your next move should be to begin researching all the fundamental criteria outlined above.
Select Property Group’s latest guide – How to Invest in UK Property – can offer you some insight into the UK property market and the features that make it one of the world’s most trusted property markets.
For more information about our current UK property investment opportunities, get in touch with Select Property Group today and a member of the team will be delighted to assist you.
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