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Considering your first-ever property investment? Here are 10 key things to remember before you start investing your money.
For millions of people globally, property is their preferred investment type.
You can read some of property’s key benefits, including some general investment property advice, in this article here.
Each year, waves of first-time investors enter the market, looking to start their property portfolio.
If you’re one them, this should be an exciting time. But, it’s also crucial that you do your research and consider numerous criteria before you begin investing your life savings.
Below we’ve highlighted 10 investment property tips that you need to remember before you secure your first asset.
Of course, you want to invest in property to make money and growth your wealth. That’s taken as read.
But, to really maximise the potential of your investment, you need to ensure that you have a long-term view. Property as an asset delivers the biggest gains when the investor knows that they’re in it for the long-term.
This is especially true if your ultimate goal is to achieve the highest possible amount of capital appreciation from your property. Allowing your property enough time, ideally years, to mature and gain value will help you to achieve this goal.
It’s also important to think long-term when your goal is to gain a regular income in the form of rental yields. Like property values, you can gradually achieve higher rental fees over time in line with market conditions.
Most importantly, though, never forget your goal. Let this lead every decision you make for the duration of your investment.
If your domestic property market isn’t performing well at the moment, have you thought about buying overseas, instead?
There’s also the currency potential to think about, too. For example, if your domestic currency is weak, earning investment returns in a stronger international currency will help you to earn more. On the other hand, buying property in a country with a weaker local currency than yours could help you to get more for your money.
Lots of research into property investment is important before making any decision to invest within the property market. But there are plenty of developers and investment specialists based in your own country that can help you to look at property opportunities overseas.
For example, at Select Property Group we have offices in Dubai, Hong Kong, Shanghai and Manchester, providing investment support and opportunities in the UK to investors based all over the world.
That also leads neatly onto our next tip.
In addition to your own research, it’s imperative that you seek the support of an independent financial advisor.
They will be able to support you with all aspects of a potential property investment, especially in areas in which you may not be familiar.
From tax considerations and regulations, to costs and issues around mortgages. An independent advisor will offer you completely impartial support and will help you plan out all aspects of your investment.
It will give you a clear idea of your aims and what will be achievable based on your personal circumstances.
In order to buy ‘the perfect’ investment property, some first-time investors make the mistake of overstretching themselves.
It’s important to invest in what you can afford, otherwise overstretching can lead to problems throughout the duration of your property investment.
Firstly, taking on too much leverage will make it difficult to keep up repayments whilst also upgrading and managing your property.
But then you need to prepare for any potential downturn in the performance and value of your property. For example, would you be able to withstand any void periods when you don’t have a tenant providing a rental income? What if you need to sell your property quickly but the value of the asset hasn’t increased by the amount you need it to?
Ensuring that you only invest in a property you can truly afford, whilst also leaving an additional cushion for all associated costs, will help reduce financial stress and make your investment more efficient.
There are lots of property sectors for you to invest your money in, each with their own strengths and benefits.
Residential property is the most established form of investment property. In recent years, specialist property sectors, such as purpose-built student property (PBSA) and build-to-rent residential property, have also become increasingly popular amongst global investors.
As a first-time investor, it’s perhaps best to choose one sector at a time rather than trying to quickly buy multiple properties in different sectors.
But once you’ve an understanding of each sector’s qualities, and their ability to help you to achieve your overall investment goal, it should help you to make an informed decision.
Below are some useful links to read more about different property sectors in the UK:
It’s tempting to be attracted to a location purely based on the latest price and performance data.
And that is, of course, still a key factor that should form part of your decision. Choosing a town or city which is projected to record strong price and yield growth in the coming years is a sound investment strategy.
But it’s also important to consider local supply levels. This is particularly important depending on the type of property you’ve decided to buy. A city may have collectively strong growth projections, but does this extend to the sector you’re about to invest in?
For example, choose locations where the demand for rental property is outstripping the supply of it. Only buy student property in a university town or city which doesn’t already have an excessive amount of stock, in comparison with the size of and demand from its student population.
Doing this will ensure that your property is likely to be in high demand from local tenants, driving your current and future rental returns.
In a similar vein to the point above, keeping up to date with the latest market data and news will further ensure you’re choosing the right sector and location.
For the latest property price growth and rental projections in the UK, the following resources offer good starting points:
It’s also integral that you are aware of new and emerging tenant trends. This will help you to make any necessary updates to your property, and changes to your investment strategy, to ensure your property remains desirable in an evolving tenant market.
For example, several new tenant trends emerged in 2020 as a result of the COVID-19 pandemic. More time at home saw many tenants reassess the qualities they value and demand most from their rental property. This included an increasing importance on reliable Wi-Fi, more space to work from home, and access to outdoor space.
In the UK, Knight Frank produce a bi-annual UK Tenant Survey which covers some of the main tenant themes. You can read the most recent report from 2019 here.
You’ll likely need to choose a management option if you’re purchasing overseas.
But even if you’re buying domestically, selecting a fully managed option for your first investment may be worth some consideration.
Unless you have a lot of free time (and even if you do), managing a property investment requires a lot of work.
Renovating the property. Marketing and advertising to the rental market. Regular maintenance responsibilities.
For many first-time property investors, these pressures can be overwhelming. Without prior knowledge of how much work goes into property investment, and how much all of this work is likely to cost, financial stress may also become a factor.
That’s why many first-time buyers may benefit from a fully managed property. Whether it’s from a developer, or via a property management company, all of the day-to-day management is removed. In essence, you have a hands-off investment generating a return with little work required from your side.
Additionally, with management costs outlined and established before entering into any agreement, ongoing costs are clearly defined from the start of your investment. Your returns will likely be paid to you NET of all associated management fees, giving you a clear idea of the income and profit you will achieve.
Caution is a natural human reaction to uncertainty. And when it comes to investment, wider economic uncertainty sees many investors apply the brakes on any new investments.
As markets react, and suffer potential losses and retractions, why would you want to invest in an asset that is losing value?
But often, investing at a time when many others won’t be, is when the greatest returns are made. And this is something that has historically happened with property investment.
Don’t be afraid to consider a property investment at times of wider uncertainty. Real estate is renowned for its ability to remain resilient even in the toughest economic climate. What’s more, unlike many other popular assets, property can still deliver you a regular income (in the form of yields) during these times.
In the UK, between 2004 and 2018, it was investors that bought UK property in 2009 – immediately after the global financial recession – that achieved the biggest returns when selling their property in 2018.
Remember, property is a long-term investment. Entering the market when it’s quiet may actually help you to “buy low and sell high”, giving you an increased chance of strong long-term ROI.
“Be fearful when others are greedy and greedy when others are fearful” – Warren Buffet, US philanthropist and business tycoon
Above all, you should only do business with trustworthy and experienced agents and developers.
Research the company’s track record. How many properties have they successfully delivered and sold?
Check their prices against market averages. Is the asking price significantly lower than local market averages? If so, why is that?
As with any product, if the offer seems too good to be true, then it probably is. It’s important to exercise caution, and to consult with your financial advisor before parting with any of your money.
At Select Property Group, we’d be delighted to talk to you about our property investment options and how we can help you to make a successful first investment.
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