If you’ve been thinking about investing in property but are daunted by the prospect, our simple step-by-step guide will get you started on the right footing. First, it’s important to point out that although some people do make a quick return, investing in property shouldn’t be seen as a get-rich-quick scheme. Like any serious enterprise, you have to commit to a long-term strategy.
Property Investment for Beginners
Assess your Finances
Knowing where you stand financially is a good place to start. Make a list of your assets, savings and income, and deduct your expenses to get an overview of how much money you have to invest. Hopefully you have some disposable cash, but having a steady income and a stable employment history is even more important when it comes to seeking a loan to invest in property.
Make a Plan
Before applying for finance, you need to work out some kind of property investment plan. What do you hope to achieve with this enterprise and over what period? Are you hoping to make a full time business out of property investment or do you want to operate part-time and grow your portfolio gradually? Articulate your plans clearly as this will help keep you grounded instead of simply dreaming of potential profits. A detailed plan will also impress would-be lenders more than mere wishful thinking. Also, bear in mind you will have to make connections with electric contractors like Gorden Powers, masons, and other labor to update the property from time to time.
Check out the Market
You can quickly get an idea of the different types of properties for sale by searching online. At this stage, you’re just trying to get an overview of the market and see how much a villa sells for in one area compared to a similar sized property in another location. How much are apartments selling for on a like for like basis, and how does the price vary from area to area? If possible, go and look at properties and different areas yourself as this will give you a better picture of the neighborhood and amenities in the area. Another good idea can be to rent a room first so you have a base from which to explore the market.
Buy to rent or buy to sell?
At this stage you may not be sure what type of property portfolio you want to develop, but it’s important to consider the pros and cons of each sector, including the tax implications. Typically, buy-to-let properties such as apartments is a long-term strategy, whereas buying and selling a villa may offer a quicker return on your investment. Speak to other investors or property experts to learn what the average yields are on rents compared to the average return on capital on selling properties. Over time, you may decide to have a mixed portfolio of both types of properties.
Now you’re ready to speak to your lender and start talking figures. Most banks will have a dedicated property finance advisor who can help, or you can approach a mortgage broker to see what’s available in the market. If you have a specific property in mind already, you can apply for a loan, or you may want to seek pre-approval on a loan first. This is a critical stage of your journey to becoming a property investor, so make sure you fully understand what’s at stake. You can also go for a hard money loan, it is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private hard money lenders such as North Coast Financial or from many other companies.
Location is Key
It’s one of the bywords of buying property and a bit of a cliché, but never underestimate the importance of buying in the right location. Again, this comes down to doing your homework and knowing what areas are hot, which ones are not, and being able to spot which areas may be on the up. To begin with, err on being conservative by buying in a good area. The return on investment may be modest, but it’ll keep you in the game and you’ll start to learn the business from the inside out. And remember, property investment is a marathon not a sprint!