05 Nov 10 tips for surviving property investment
There are strategies and guidelines that can be followed, along with proactive observance of the market, which can boost your chances of being a successful property investor. In times of economic difficulty, having a revenue-generating property portfolio can provide you with that boost to see you through the darkest financial days.
Here are some tips to help you in your investment process.
1. Keep a clear focus
It is essential to determine what you want from your property investment. Is it:
- Asset(s) for your business, for example owning your own office(s)?
- A holiday home that generates revenue when not in use?
- Capital gain. (Short-term renovation and sale (aka flipping) or long-term hold)?
- A consistent second income? (Buy to let)
2. Create a timeframe
Knowing what you want will lead logically to a coordinated time frame for your set achievement. Or you may find your timeframe determines what form of investment you pursue. For example, if your objective is to make a return in a short period of time, ‘flipping’ could be your best option, though it comes with associated costs and can entail high risk. Essentially it involves buying under-market-value properties, renovating and then selling them at a profit.
Alternatively, if you are after a higher return over a longer period, buy to let could be a suitable option. Yields of between seven and 12 per cent can reasonably be expected, but variables such as interest rates, periods of vacancy and ongoing maintenance costs can impact this.
3. Avoid over-leveraging
Try to avoid using more than a 50 per cent mortgage to purchase your property. Though this may be difficult at the beginning of your portfolio construction, it should become feasible sooner rather than later. Despite the surface attraction, re-mortgaging is a bad idea. If you have to use it, shorten the duration of the loan. The longer it continues, the more pain it can cause you later in life.
4. Avoid shared mortgages
Despite allowing a higher rate to be borrowed, they require one person to be the core borrower and another to borrow less. The person with the higher income will be the core borrower, even if they have a lower credit rating, so your interest rates could be substantially higher.
They typically allow for one owner only, so arranging for split ownership further down the line could be a tiring and long process which could strain the relationship you have with the other borrower.
5. Start small
If committing to full ownership of a property is too risky for the time being, consider investing in a REIT (Real Estate Investment Trust) or fund. Such products are well structured and offer more liquidity to the holder.
6. Constantly review your plan
Keep clear notes of your investment process and plan ahead at least six months in advance. No two six-month periods will ever be the same, so ask yourself hypothetical questions such as:
- When mortgage rates change by X percent, how will this impact on me?
- When property prices rise/fall, how will this impact on me?
7. Invest overseas
If you do not have sufficient confidence in the domestic property market, try taking advantage of foreign currencies and markets that may require lower levels of investment with higher yields. You will have to carry out extensive time-consuming research before handing over funds to be managed by a third party.
Do not look just at the value and potential of the property. Consider the economy and political stability of the country you are investing in and try to gauge its tourism status. If it is a tourist hotspot the property market is more likely to be lucrative. Overseas investment hotspots currently include Istanbul, Sao Paulo, Sofia (Bulgaria) and Berlin.
8. Don’t be afraid to bargain
If you are buying a property from a private seller, try to find out as much as you can about the seller’s personal circumstances. You may discover an opportunity that justifies a price reduction.
9. Save money on tax payments
You will need expert professional property and accounting advice here. By using certain property investment vehicles and buying certain types of property it is possible to reduce tax payments.
10. Have an exit strategy
Timing is everything when investing. Knowing when to get in is only half the battle. You need to keep a vigilant eye on the market and know when, if necessary, to pull out of certain investments. At times you may have to cut your losses and move. If you have a workable exit strategy at the point of investment, it will save a lot of time and stress when the time comes to liquidate.
Remember – the property industry provides far more data than it used to. Keep track of it, of course, but avoid making knee-jerk reactions based on one piece of news. You may well find a contradictory news source five minutes later.