Housing prices are at an all-time high of 336,073 pounds on average in the UK, reports Bloomberg. Rent prices are following suit on the back of increasing demand. Now is a promising time to purchase your first investment property, whether to flip or rent out. Yes, prices are high and there’s always some risk involved, but the rewards may be significant if you play your cards right.
Here are some practical, tried-and-tested guidelines to follow when buying and managing an investment property, courtesy of the experts at Cole Harding:
Consider if you’re equipped to flip or be a landlord
Making a profit from real estate investments sounds easy in theory. In practice, it’s fraught with risk and complications. Flipping requires you to wear many hats and can almost be a full-time job, as can being a landlord. Be ready to invest significant time and energy in the endeavor before you continue. Acquaint yourself with the risks – like foreclosures, unpredictability, and problem tenants. Basic home maintenance and troubleshooting skills – or having a team of people ready – will stand you in good stead. Prepare yourself emotionally and mentally for the uncertainty.
Finance vs. cash purchases
Having a financial plan in place is critical to the success of your investment. Traditionally, investors have always favored buying investment properties with cash. However, financing could net you a higher return, provided the demand remains sustainable, explains Millionacres. It pays to do your calculations beforehand and calculate the potential return on every dollar you spend. Further, it’s always a good idea to maintain an emergency fund for unforeseen expenses.
Market research is paramount
Doing your research and knowing the property market inside and out is the only way to find a suitable investment opportunity. When looking at your options, consider factors like the neighborhood, age of the property, amenities, construction quality, city regulations, lot size, and projected long-term valuation. It’s worth your time to find a good real estate agent to obtain inside information on any given area.
For landlords, vacancy rates are a critical indicator of a property’s viability for investment. This applies to multi-family homes or apartments and commercial properties like motels. The vacancy rate shows the percentage of the property that’s unoccupied. A low rate is excellent – it means lots are occupied, the neighborhood is in demand, and people want to live there.
Brush up on your legal and tax-related obligations
Landlords have several legal obligations to note. Some examples include making the property hazard-proof, keeping the tenant’s safety deposit in a government-approved scheme, and having health and safety inspections conducted. You will also need to pay income tax on your rental income and acquire Class 2 National Insurance (in some cases). Your tenants also have some rights, which you should keep in mind at all times.
Should you manage the property yourself?
You can choose to manage the property yourself or hire a property manager for you. The first option is, of course, cost-effective, albeit time-consuming. You will have to do basic repair and maintenance work yourself. Property managers can handle everything on your behalf, from filling in vacancies to collecting rent and making repairs. However, not all property managers are trustworthy, so weigh the pros and cons and take your time before you hire someone.
Conclusion
As a first-time investor, it’s a good idea to play it safe. That means you should probably steer clear of a house flip unless you’re supremely confident and have a solid plan. Consider buying a low-value house even if you have a million pounds at your disposal. This will allow you to get your feet wet without too much risk. Always be practical and grounded when investing and you are bound to be successful.
Image via Unsplash
