Investment property is hot news right now. The property market is booming in many areas as demand outstrips supply. For the keen investor, this is both good and bad. It is good if you are keen to buy to let, but bad from the perspective that you may end up paying more for a property you like. Finding the right investment property is not always easy, but if you get it right, you could look forward to a healthy income once you reach retirement. Here is a quick guide to ensure you do not make any rookie mistakes.
Buying a property is not cheap. There are many expenses to consider along the way, not least the cost of financing the purchase. Conventional loans are perfect for homeowners, but you will need to look at specialist products if you are buying to let or renovate. There are lenders out there who cater for the buy to let and investment market, so approach a few and see what their lending criteria are.
What are Your Reasons for Buying?
Think carefully about why you want to buy an investment property. Some people buy to let, so they can enjoy a regular income as well as capital gains. Others buy with a view to renovating the property and selling it on for a profit. Before you buy, make sure you know which hat you want to wear, as this will affect the type of property you buy.
Know Your Budget
Have a clear budget in mind before you start looking at property investment. There is no point in scrimping and scraping to buy an investment property if you can barely afford to pay your current mortgage.
Once you know how much you can afford to spend on a property, do not be tempted to exceed your budget and always keep a reserve fund in place to cover any unexpected expenses that could arise. Remember, buying property is not cheap, as there are many costs involved. Be sure to budget for these costs before you begin viewing properties.
Know Your Target Tenant
If you plan on letting out your investment property, think about the type of person you hope to attract. It is pointless looking at properties unless you know who your target tenant is.
For example, if you decide to buy an investment property in a tourist location, with a view to letting it out to people on vacation, then this will have a major impact on the areas you look at and the type of property you end up buying. After all, tourists will prefer staying close to the beach in a seaside town, so they will be less interested in a flat several miles inland.
Other target groups to consider include young professionals, families and low-income tenants. Each group has its pros and cons, so think carefully about which one you want to target.
Look in the Right Neighborhood
As we have already mentioned, buying a property in the right neighborhood could make a big difference to your income.
Properties in poor neighborhoods are cheaper, but they come with their own set of problems. Crime rates will be higher and capital gains will be lower when you eventually decide to sell.
If you don’t know the local area, talk to real estate agents and take advantage of their local knowledge. They will be able to advise you on the best places to look, as well as the neighborhoods popular with tenants. For example, if you are considering buying a property with a view to letting it out to students, it makes sense to look for properties near colleges, but not all areas will appeal to students, so find out more before you commit to buying.
Look at the news to see if there any major changes on the cards. New transport links, new employers moving to an area will all affect property prices and desirability. If you can buy a property before the neighborhood has moved up a notch, you could make a decent profit.
Look for the Right Property Type
Property type matters a lot of you want to let to tenants. Families will want larger homes with gardens and schools nearby whereas young professionals will probably prefer modern properties close to local transport links.
There is a lot to think about when buying an investment property, so don’t rush into anything. Talk to other investors and take advantage of their experience. This should prevent you from making too many expensive mistakes.