Everyone knows that property is one of the best investments you can make. Bought properly, they’ll hold their value, provide a passive income, and form a significant part of your portfolio. However, the key term in the last sentence is ‘bought properly.’ If investing in real estate was easy, then everyone would be doing it. To make sure you get the best return on your investment, you need to be following some set guidelines, which we’ve helpfully put together below.
Quality of Location
Of course, the location of your property will be the biggest factor as to its potential return on investment. However, it’s not just about the city or region; an investment in one area of London might be an astute idea, whereas an investment in another area might be considered foolish. When you’re thinking about location, think about all the aspects: the city, the area, the street, the position of the street, or the floor that the apartment is on. A home that faces west will attract higher prices than an east facing home, for instance.
Demographic of Population
If your plan is to one day sell your property for more money than you paid for it, then you’re going to need, well, someone to buy your property. As such, it’s important that you take a look at the demographics of the people who live in the neighbourhood you’re considering investing in. If this is one of those ‘getting on the property ladder’ places, then there’s going to be a ceiling to how much people are willing to pay. However, if it’s in a trendy area where people have always liked to live, then it might be a good investment.
One mistake many first-time real estate investors make is only looking at the state of the house location as it stands now. You’re not going to be selling the property anytime soon, so what’s happening now doesn’t really matter, at least regarding your potential profits. Consequently, it’ll be imperative that you take a look at any known changes that’ll be happening shortly. If you’ve bought a house in a beautiful area, but they plan to build an airport there within ten years, then your investment will be dead. On the other hand, if you’re buying in a regeneration area then the future economic boost will only do good things for your investment. In short: see what’s up ahead before buying.
With that being said, it’s not always critical that you follow the trendy neighbourhoods or plans. Some places will always have value, especially if they’re located in historic neighbourhoods or near to naturally beautiful areas. That’s not to say that they’ll automatically make for a good investment, but that sometimes ‘plans’ don’t count for everything. The value of a luxury mountain property, for instance, probably isn’t dependent on a shopping mall popping up.
New Property or Existing Structure?
When it comes to which kind of property to invest in, it’s usually a toss up between a new property or an existing structure. While we’d like to be able to tell you which one should be considered a wiser purchase, the truth is that they both have their qualities, and it depends on where it is, type of house, and how much it is. You’ll have plenty of people lining up to tell you that existing buildings are the only way to go, but there’s a line just as long to tell you the opposite. As such, it’s important to calculate the cost (especially when it comes to new builds), it’s location, and when you plan on selling the property.
Analysing Your Ambitions
You can’t know where to invest your cash until you know where it is you want to go. If you’re planning on renting your property out, then you’ll need to think about the rental market in the place where you’re thinking of buying. Beyond that, you’ll need to keep in mind how many years you’re planning on keeping the property. Are you going to buy it and flip it, or is this a property you’ll one day pass down to your children? Think about what you want from the investment: it’ll help narrow your focus.
For Your Children
Talking about passing your property onto your children, you’ll need to think about how the property will affect them. For instance, some countries have a high inheritance tax, which your children will have to pay. To avoid this, look at buying a property in a country where there are no additional costs, such as Singapore. If you have an HDB flat, you’ll be able to rent it out and then, eventually, pass on to your children without penalty. You won’t just be buying a property for your own security, but also your children’s!
The Support Network
It can take a lot of work to keep a property up and running. If you don’t, you might find that your investment is rotting away, purely because of neglect. If you don’t have the time yourself to make sure everything’s in order, then you’ll need to find other ways to keep your property in pristine condition. You could rope in friends and family, for example. Or, if you’re planning to rent out the property, you could find a property manager to take care of all the legwork for you.
Trusting the Sellers
You’re buying a property, but that’s not really where the value of the “house” is. If you had a seven-bedroom mansion in the middle of a desert, it’d be worthless, because there wouldn’t be any infrastructure to make it livable. You might find a great property that has bags of potential, but you should only invest if it’s a potential that you can see, not what the seller is telling you. If there are plans to build a new subway station near to your house, which would improve the public transport links and thus increase the value, then you’ll need to do your own research to ensure those plans are going ahead. Don’t take the seller’s word for it!
What does your Financial Advisor Think?
No-one can be completely sure if a property investment is going to be the right move for you or not, but there are some people out there that can make it easier to make an informed decision. One of these people will be your financial advisor. Before you invest in a property, you should be speaking to him or her to ensure that it’s the correct thing to do from a financial point of view. They might spot something important in your portfolio that would make investing in real estate a mistake, for instance.
Looking at the Risk
And following on from that, it’s crucial that you take a look at every eventuality before deciding to proceed with your investment. There will be risks everywhere; it’ll be up to you to determine if they are small or big risks, and then make a calculated decision. There will always be risks attached to buying a piece of real estate as an investment, but if you do your due diligence, then you will be in a strong position to ensure your investment isn’t a mistake.
Energy – Time
Finally, remember that it takes a lot of hard to work a property profitable. You might need to bide your time before you’re able to make a profit. You’ll need to think in the long term and be willing to put in the effort before proceeding, as it’s going to be a long journey.