Investing in property can be extremely rewarding, not to mention interesting, and represents a great way to add another string to your bow. Property investment can also, however, be rather complex.
Among the main drawbacks of investing in property is the fact it represents a very expensive investment that will require lots of maintenance in order to provide the returns you are after. It might also prove particularly difficult to get your money back if you need capital quickly.
Despite this, many people remain keen to take up the challenge. The rewards can be great, and building a property portfolio can be interesting, educational and, dare we say, even fun. Should you choose to invest in property, you should ask yourself a number of important questions to give yourself the best chance of getting what you want from your investment:
What income would you like to earn from property investment?
As with any form of investment, you need to think about what you would like to earn from it. If you decide on the monthly income you would like to derive from your property investment, for example, you can work out how many, and what type of, properties you will need to own. When looking at income, you also need to factor in that there will be periods where the property may be empty.
You should also think about how long you wish to invest in property for - is it a fairly short-term plan that you hope will generate money quickly? Or is it a long-term strategy aimed at providing you with regular income over a longer period? Whatever your answer, you need to tailor your plan to meet your end goals.
How much are you willing to spend on a property?
This is vitally important because it will influence the answers you need to provide for various other questions, such as:
- What type of property do you want to buy?
- Whereabouts are you looking to buy?
Obviously, different types of property, and where they are situated, will help determine how much a property costs. These also influence how much money you can expect to make back, and how quickly.
It may sound obvious, but you should also bear in mind that property investment isn't just about one-off purchases. You will also be required to maintain the properties for as long as you are the owner. This can be anything from essential, practical works to keeping up with the latest design trends.
The amount you spend on a property will obviously have a direct impact on how much money you can make through your investment, and how long it will take to reach your target amounts.
Who do you want living in your properties?
If, as many people do, you plan to rent out your properties, you need to think about who you want to rent them to. For instance, students represent a very different tenant than, say, a young couple, and will likely have different demands and expectations. This will not only impact how much money you will have to spend on buying and maintaining your property, but might also affect the relationship you have with your tenants.
The type of property and the type of tenant will often go hand in hand. For instance, a single young professional may be on the lookout for a studio flat, while a family might require a three-bedroom house.
The impact of the summer budget
The recent summer budget will likely have a significant impact on residential buy to let landlords and is something investors should bear in mind as they weigh up the pros and cons of investing in property. Chancellor George Osborne announced in his budget that he would be cutting higher-rate relief on mortgages, deducting almost 11% off the gross returns from buy-to-let properties. The changes, which will come into effect in 2017, will result in landlords losing one-quarter of their higher-rate relief each year until 2020. After this date, this will be capped at 20% on all mortgage interest.
The removal of mortgage interest tax relief is likely to impact hundreds of property investors and could result in annual losses for some landlords. To combat this, many landlords may choose to increase their rents.
Investing in property via funds
Although some people enjoy the additional work that can accompany property investment, others prefer options that involve less hassle. One such method is investing in property via funds.
While property investment carries various risks, the level of risk can be reduced by investing in a commercial property fund. Such a fund invests in a number of different commercial properties, helping to create a diversified portfolio and therefore resulting in less risk.
Investing in funds can be more straightforward than direct property investment and involves a lot less work on your behalf. When indirectly investing in property through a fund, the money will often be collected by a professional manager from various investors, and the fund manager will charge a fee to then directly invest the money in property or property shares.
There are various types of property funds used, including property investment trusts, real estate investment trusts, insurance company property funds and shares in listed property companies.
If you would like to explore the possibility of investing in commercial property via a fund - something likely to carry less risk and involve less hassle - the team at Equilibrium can help.
You can read more about our investment planning services here. To speak to us about your situation and your goals, either call us on 0808 168 0748 or complete the online enquiry form and we will get back to you.
The information provided through the Equilibrium website is based on our opinion and is for general information purposes only. It is not, and should not be construed as financial advice.
The value of your investments can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.