Property investment has long been a dependable way to invest our wealth. An old saying goes along the lines of, 'nothing is safer than bricks and mortar,' which can be accurate; however, we must be aware of some issues that could affect the success of such a venture. Here is our newbie's guide to investing in property. It should not be considered a fail-safe for a successful experience, but it gives some excellent advice. As with any investment, judge each opportunity on its merits and proceed accordingly.
What Type of Property?
There are a few different ways we can invest in property. We could buy our family home, a property to renovate and sell, or even a rental property. As well as the purpose of our intended purchase, we should consider what property style we should be looking at. Do we wish to invest in a high-value property? Alternatively, we could purchase several smaller and lower-value pieces of real estate, lowering the risk by spreading our investment.
Location.
Location is a crucial consideration, affecting the buying and selling price. If we are looking to rent out a property, the desirable areas may differ from those looking to buy. Classic areas for successful rental properties would include areas near universities, towns peripheral to large cities, suitable for commuting, or inner-city apartments themselves. We want to sell large family homes, then safe and vibrant communities near good schools and local amenities.
Alone, or With Partners?
Investing in property is not a budget option and can be a serious investment, taking up a considerable amount of our available capital. But we can do it with others; various options exist for finding investment partners. If you have friends or family interested in investment, this may be an excellent place to start. There are even opportunities to make a small investment as part of more significant property investments in a peer-to-peer investment scheme.
Tax Obligations
If we invest in property for profit, we should know the tax implications. If we profit during a tax year, tax will be due on those amounts. It may be a good idea to employ a specialist property accountant to ensure you are paying only what you need to. There are ways of making the tax situation work in your favor; you can defer taxes due on the sale of a property if you subsequently purchase a "like-kind" property; full details can be found in this 1031 exchange guide for 2021.
How to Finance the Purchase
It may be that we have a large amount of savings or have recently benefited from a large inheritance. But most of us are not so fortunate, so we must find the best method of borrowing or obtaining the funds for our venture. The most common and obvious route is looking to take out a mortgage. We need to be aware of this situation because, for commercial purposes, a standard mortgage will undoubtedly be unsuitable and possibly even illegal. We should consider additional costs as well; if you are looking to rent the property out, there are landlord's obligations; you must have landlord's insurance and a buy-to-let mortgage. Finding the best landlord insurance is crucial for property owners, ensuring they are adequately protected against potential risks and liabilities associated with renting out their properties. Check out this rental property calculator to work out your potential costs and profit realistically.
Upgrades & Renovations
Upgrades and renovations are a big part of the commercial property investment world. Adding value to a property you intend to sell is a great idea, but we should be aware of the downsides. Budgeting is vital here, but as well as a planned budget can be, there is no guarantee that we will not face delays, cost increases, and other unforeseen problems. We should ask for fixed costs, not quotes from contractors we hire. Look for good reviews or recommendations to find the most likely people.
Selling the Property
There are certain things to be mindful of when selling a property. Consider waiting until all the work is fully complete before putting it on the market, as you can show it off in its full glory at that point. When choosing an asking price, we should be considerate of fees and costs that will come out of our profit. Real estate agents fees and local or national sales taxes, which vary depending on location.
