We know more than anyone that the start of a new year is often when investors (or would-be investors!) start thinking about their next investment. In the property world, it’s also the perfect time to start planning from a financial perspective as the end of the tax year approaches.
If you’re just starting in the world of property investing, we get that it’s an overwhelming process. This is especially true if you’re doing it all yourself – from working out an investment strategy and investment goals to performing your own research and due diligence.
This is why we’ve created this article. Below you’ll find the property investment do’s and the property investment don’ts that you need to consider before you start building your investment portfolio.
Property Investment Do’s
Here’s a breakdown of the investment best practices you should be considering when you invest in the UK property market:
Establish financial boundaries
As with any investment, the most important aspect to consider is your bottom line. Remember that all investments can fail and even though property as an asset class is historically reliable, it’s not necessarily an easy win.
Never invest with money that you cannot afford to lose. This is especially true in property when your money is often difficult to withdraw once it’s invested. If you’re buying a new-build apartment for example, which is a popular choice these days, you’ll often have money tied up in the property for a significant amount of time.
This is also why it’s important to establish a financial plan and financial boundaries. Consider how much you can invest in the short term and what costs might be on the horizon. Speak with a professional about your financial goals and always seek professional financial support before making large decisions.
Finalise an investment strategy
Once you know how much money you have to play with, you can start preparing your wider investment strategy. It’s key to have a budget in place as this allows you to understand exactly where and what you can invest in.
Depending on your long-term goals, your investment strategy may change. Investors who are looking for consistent rental income, for example, may look at different areas to those who are seeking capital gains from rising property prices.
Likewise, depending on your chosen area, your investment strategy may change. Cities such as Liverpool and Nottingham have a much higher student population and thus are popular with landlords that have larger properties in their portfolio. Birmingham and Manchester, on the other hand, are much more led by the young professional market, meaning one and two-bed apartments are extremely popular.
Perform your research
Research is potentially the most important factor in making an investment decision. It helps you make more informed choices and ensures that you’re fully prepared for what might come next. When we talk about research, we’re thinking about the following factors:
- Best areas for buy-to-let investment
- Local property prices
- Local rental prices
- Rental demographics in the area
- Historical growth in the market
- Transport links and amenities nearby
- Employment opportunities in the area
- Upcoming regeneration projects that may affect demand in the long term
Initially, you’ll typically look at areas more than properties. You’ll want to get a sense of where the best places are to invest in the UK and then drill down into individual areas or neighbourhoods. When you tie all of this research together, you’ll be in a great place to start looking at individual property types.
Initially, you’ll typically look at areas more than properties. You’ll want to get a sense of where the best places are to invest in the UK and then drill down into individual areas or neighbourhoods. When you tie all of this research together, you’ll be in a great place to start looking at individual property types.
Be realistic around expectations
When you’re laying out your investment plans, it’s important to be realistic around both potential returns and timeframes. Property works differently from many other asset classes and is much more suited to a long-term strategy.
Ask any seasoned property investor and they’ll tell you that property is a game of patience. The UK property market is historically very cyclical with regular peaks and troughs. If you’re investing for capital gains, for instance, the consensus is that you’ll generally want to hold on to a property for upwards of 10 years to maximise its efficiency.
This allows you to not only build rental returns (with the possibility of compounding returns) but also maximise the amount of capital gains you’ll earn over time.
Likewise, be realistic around your timeframes. Property takes a long time to build, especially if you’re buying off-plan property and the development still needs time to complete. It’s always a good idea to be patient and understand how the process works.
Work with the right people
A great way to find success when buying a property is by working with the right people. If you have a reliable mortgage professional, solicitor or conveyancer, property agent and financial advisor, you’re in a fantastic position.
It’s always important to ask questions as well. If you want to keep stress to a minimum, asking the right person can be a huge help in putting your mind at rest and ensuring you’re on top of your due diligence.
Property Investment Don’ts
So while we’ve established what you should be doing, what is it important to avoid when property investing?
Buy with emotions
The best investors always invest with their heads, not their hearts. It’s easy to get swept up in the emotions of investing but this often leads to making bad choices. If you think about things logically and back those ideas up with plenty of research, you’re much more likely to make informed investment decisions.
Forget or push your financial boundaries
Always have your bottom line in mind when you invest. A common investment mistake many people make early on in their investment careers is not thinking about the total cost of the investment.
Make sure that your planning includes the total cost, not just the purchase price. You need to think about your investment as a business – it comes with overheads and potentially unexpected payments, all of which impact your ability to invest.
Cut corners because of cost
While it’s important not to push your financial boundaries, it’s also important not to cut corners because it’s cheaper.
The worst thing you can do is skimp on necessary checks or due diligence that may cause headaches or cost even more money further down the line. Likewise, when you come to furnish the property or start letting it out, investing some money upfront in quality makes the entire process of letting much easier in the long term.
Act hastily
One of the better things about investing in property is that it’s not as fast-moving as other investment classes such as stocks and shares. These investments represent huge purchases and for that reason, it’s always worth taking the time to get yourself in the best position possible.
While you don’t want to miss out on the opportunity of a lifetime, it’s always better to weigh up every potential scenario and ensure that you’ve done the necessary research.
Likewise, remember that different opportunities arise all of the time. If it seems too good to be true, it might be worth waiting it out and learning more about a new development or researching the developer’s background.
Buy without viewing or researching
While this might sound obvious, don’t buy somewhere that you don’t know about based purely on marketing. If possible, it’s always a good idea to invest in an area that you know or can easily research. This means you have a much better idea of what to expect, how to approach the investment and what might be happening in the surrounding area that impacts your investment.
If you’re buying in Birmingham for example but you’ve never been, we have a completely free Birmingham Investment Guide that provides all of the information you need. This type of research ensures that you don’t experience any nasty surprises and understand what you’re getting into.
