Buying Property as an Investment – Some Strategies for Success
'The only bad time to buy property is later.' (Steve Bolton)
Buying property, whether to live/work in or on a buy-to-let basis, could be one of the most important investments you make.
Here are some strategies to help you on your way.
Map out your investment goals: Do you plan to 'buy-to-let' to provide steady income? Or as a wealth-builder to hold for long term capital growth? Or to 'flip' (quickly resell, with or without renovation)? Formulate your strategy accordingly.
Do your homework: Before making any big property investment decisions, research the property market, the area where you want to invest and the type of property you want to buy (see below).
Choose what type of property you want to buy: You have a wide choice here - vacant land (to develop or to hold), residential property (to live in or to let out), commercial/industrial property, agricultural land etc. You might also consider an indirect property investment via for example an REIT (Real Estate Investment Trust).
Location, Location, Location: Look for properties in areas with a high demand for rental properties (even if you are buying a house to live in, the time may come when you decide to rent it out), good infrastructure and potential for capital growth.
Consider diversification: If you plan to go big on this, you could invest in different types of properties and in different locations to spread your risk.
'Buy Low': It seems self-evident but more than a few investors lose sight of the fact that a big part of success when it comes to property investment is 'buying low'. Some ways to achieve that:
Negotiate: Don’t be shy to negotiate on price or to bring in a professional if your negotiating skills aren’t up to it.
Consider a 'renovation' property: Properties in need of renovation can be bought at a lower price and renovated to increase their value and rental potential.
Look for bargains: Repossessed properties, properties in insolvent estates, distress auctions, sellers wanting to sell quickly (perhaps for financial or personal reasons), could all be a source of well-priced property. But tread with care because this type of property can come with more pitfalls than normal.
Take professional advice: For most of us, property should be just one element in a balanced investment portfolio, structured to meet our particular needs and goals, so ensure that you take competent financial advice upfront. Then go to the property professionals in your target area and market. Your first port of call in this regard should be your attorney who can share valuable insights into the local property market and can in need refer you to other trusted professionals in the area.
Choose wisely when it comes to financing options: Using mortgage finance to purchase property can provide leverage and enable you to invest in more properties than you would be able to with cash.
Manage your cash flow: Ask your attorney to help you draw up a full budget for your purchase costs so you plan properly both for your cash flow and for profitability.
Manage the risks: If you have a bond, build into your calculations the possibility of interest rate increases in the future - a highly leveraged property leaves you little room to manoeuvre if the market turns against you. If you are letting out to tenants, provide for vacancy rates and periods of low demand for rental property. Budget for worst-case scenarios!
Property management might pay for itself: Consider using a property management company to manage your rental properties as this can take the stress and workload off you and provide a more professional service to your tenants.
Don’t forget the tax implications: This is vital – there are both potential tax benefits and tax pitfalls awaiting the property investor and taking upfront professional advice to structure your investment for tax efficiency could make all the difference between an acceptable return and an exceptional one.
Investing in property can be a great option for you if you are looking for long-term growth and a steady income. However, it's important to do your research, to seek professional advice and to consider all the available options before making any investment decisions.