What makes the property market so alluring for first-time investors? The answer is straightforward: this investment offers tangible assets, providing reassurance. Unlike stocks or bonds, which are represented by paper, buying a house provides a real asset you can see and touch.
On the other hand, buying real estate is much more complex than buying stocks. The number of factors that you must consider can be overwhelming. However, with the proper guidance, understanding the market can become manageable. Here’s a guide distilled from the wisdom of seasoned investors, aimed at guiding novices through the intricacies of the property market.
Tips to get you started
Choose the right location
Determining the right location requires considering various factors, including the strength of the local market, average yields, demand levels, and the area’s growth potential.
Additionally, take into account the type of tenant you want to attract, as well as the diversity of local amenities and transport links available in the region. Proximity to supermarkets, hospitals, and leisure facilities can significantly boost the appeal of your property.
Assess whether the area is experiencing growth or has potential for growth by looking at planned infrastructure developments, new business establishments, and other growth indicators. Areas undergoing regeneration or with planned transport improvements may offer good investment opportunities.
Remember that your chosen location will likely influence the type of tenants you attract. For example, families generally prefer areas with good schools, parks, and low crime rates. Young professionals, in turn, may be drawn to urban areas with easy access to work, public transport, and entertainment.
Consider the type of property suitable for your goals
The kind of property you invest in dramatically influences your investment strategy, the returns you might see, and the level of risk you’re stepping into.
Initially, you’ll want to decide whether you’re keen on off-plan or on-plan real estate. Venturing into off-plan properties entails buying property before it’s fully built. This often paves the way for a lower buying price and the chance for capital growth if realty values shoot up when the place is ready. Nonetheless, there are hazards like construction hold-ups or the final build deviating from the initial plans.
Conversely, putting your money into on-plan or finished developments lets you eye the finished product before buying, which tends to lower the risks. As an alternative to fully developed projects, consider buying refurbished properties. They require less ongoing maintenance compared to older, non-refurbished properties. However, the purchase price may be higher as a result of the refurbishments.
The next step is deciding between residential property investments or commercial developments.
Residential properties are typically easier to manage and have lower entry costs than commercial facilities. They also often have more stable demand due to the essential need for housing.
Within the residential property sector, investments in student accommodation are gaining popularity. It’s understandable. Student housing can be highly lucrative due to the constant demand. It often has higher rental yields and the possibility of renting to multiple tenants. Nevertheless, it can have increased turnover rates and may require more management and maintenance.
Commercial properties, meanwhile, can offer higher rental yields and longer lease terms, providing a steady income. However, they may have higher vacancy rates and are often more affected by economic conditions.
Analyze your mortgage options
The most common mortgage types are fixed-rate, standard variable rate (SVR), tracker, discount, offset, and interest-only mortgages.
A fixed-rate mortgage has a constant interest rate and monthly payments that never change for the loan term, which can range typically from 10 to 30 years. This type is beneficial for budgeting and planning as it provides stability, especially if you believe interest rates may rise.
SVR mortgages have interest rates that fluctuate in response to changes in the lender’s standard variable rate, which can be influenced by various economic factors, including the Bank of England’s base rate. They offer more flexibility as they usually have lower early repayment charges than fixed-rate mortgages. However, the fluctuating rates can make budgeting more challenging.
Tracker mortgages have variable rates that track a nominated interest rate, usually the Bank of England base rate, plus a set percentage. There is a high level of transparency as your pay rate is directly linked to a publicly available index. However, like SVR mortgages, the variable rate can make budgeting harder.
Discount mortgages have a variable rate, but with a discount applied for a set period, typically two to three years. They provide lower initial repayments, but rates can increase, especially if the SVR increases.
Offset mortgages link your mortgage to a savings account, and you only pay interest on the difference between the mortgage balance and your savings. They are more complex but offer the potential for lower interest payments or a shorter mortgage term.
With interest-only mortgages, you pay the interest charges each month, and the original loan amount remains unchanged. They have lower monthly payments, but you’ll need a plan to repay the loan amount at the end of the term.
Decide between hands-on management or agency assistance
The choice of either managing your assets on your own or hiring an agency/property manager is a crucial one, hinging on several factors such as your experience, availability, and financial considerations.
Handling it yourself could save you the fees that would otherwise be paid to an agency. You’ll have the final say on how the property is maintained and managed and can foster a personal rapport with your tenants. Yet, it can drain your time, especially if you have a portfolio of properties or if the real estate demands regular maintenance.
This is where property managers come into play. They can save you a significant amount of time and stress by taking on the daily chores, tenant interactions, and legal compliance. Professional management often translates to happier tenants and better retention, potentially leading to a steadier rental income.
The primary downside is the cost factor. They will take a cut of the rental income, ranging from 5% to 15% or even more.
Your real estate investment journey is about to begin
Real estate is a dynamic field; hence, arming yourself with knowledge, embracing continuous learning, and staying abreast of market trends is paramount for long-term success. Adopting a patient, educated, and strategic approach can significantly mitigate risks and pave the way for a rewarding and sustainable investment journey.