Investing in real estate is no longer for the faint-hearted due to recent global events. However, property investors generally believe it’s always a good time to invest in property when you know what you’re doing. Like all investing, buying and renting out properties takes knowledge, know-how and an understanding of your risk profile, i.e. what level of risk you’re comfortable with while operating in all phases of the property cycle from boom to bust and recovery.
Here are five 101 tips on getting started as a property investor and building a property portfolio.
Education – It All Starts Here
Before you begin investing, educate yourself on everything about the housing market and the workings of property investing. Discover the meaning of jargon such as positive and negative cash flow, cash by cash return, cap rate, and return rate. The numbers are everything, including the purchase and ongoing costs, the rental income, mortgage repayments, and other regular outgoings, including rates, insurance and maintenance. The only way to know if the property is a good investment is to know the numbers inside and out and off the top of your head too. Once you know how to calculate the return on investment, then you can consider other buying drivers.
- Location – is the property near amenities, entertainment, schools, transport infrastructure
- Rentability – is the property attractive to prospective tenants?
- Return on Investment – can you make a profit from the property? Will the property grows in value, so you can achieve a healthy capital gain when you sell it?
Steven Taylor believes investors should have goals and an action plan. People don’t plan to fail. They fail to plan. You need to know if you want positive cash flow or capital value, aka appreciation over the long term. You want a bit of both.
A robust financial plan is essential to know how you are in a favourable position, i.e. making a profit. There is no point in investing in anything if, by doing so, your investment capital is not growing. For example, if you put your money in the bank, it will earn interest, albeit a tiny percentage; however, that is profit. Therefore you need to know what percentage return your property investment portfolio is providing you and that it is better than just leaving your money in bonds or a savings account in the bank.
Make sure you follow your plan and start with the ‘numbers’ no matter how tempting a property offer may be, do not buy on emotion. Before you secure the purchase, make sure you tick all the boxes, i.e. good numbers, great location, and a good tenant base.
There are many online resources for budding property investors, including online discussion forums where you can seek advice from other investors, and you can also join your local property investment association. If you still lack the confidence to get started yourself, get help from an expert like Steven Taylor or a mentor in your area. You’ll be pleasantly surprised just how forthcoming landlords and successful investors, and property entrepreneurs can be when you show your enthusiasm to do what they do exceptionally well.
Plus, if buying an actual property is not for you, there are other options to invest in the property sector, for example, buying shares in a property fund where you will receive property dividends as the venture grows. If the property loses value, you will also share the losses.
Property investors love money, and they respect it. Plus property investors do diversify to include shares, bonds, businesses and what’s popular now – investing in crypto assets. However, a good starting place for anyone keen to achieve financial freedom is property investment, as you also acquire a healthy appetite for everything from the economy, stock markets, businesses, digital currencies and blockchains, plus housing markets.
Keen to read another article on getting on the property ladder? This one on how much deposit is needed should interest you.