When you see some of the large figures invested in property around the world sometimes it is difficult to know where to start and indeed whether property investment is for you. The reality is that there is an array of different investment vehicles and you can begin your property investment life with just a few thousand pounds. There are a number of factors to take into consideration when looking towards property investment which we will cover below.
How much do you need to start?
As we touched on above, just a few thousand pounds you can buy units in a traded property trust or a percentage of a private property project. Obviously, the lower your investment the lower the potential return in monetary terms but the reality is that you have to start somewhere. If you have a larger investment pot then you can look towards direct investment with a significant deposit and a mortgage perhaps the best option for many people.
Where you take on additional finance such as a mortgage you will need to have appropriate cash flow and income to cover this. While recent regulations introduced by the UK government have tightened the criteria for mortgages the larger the deposit you have available the greater the chance of securing funding.
Which markets offer the best potential?
Before you even begin to look at a possible property investment you need to work out exactly what you are looking for, what is your aim and how do you propose to get there. Many property investors will begin their investment career without a strategy and without a particular target. You need to have a start game and an endgame (even though this can change over time) so that you remain focused on exactly what you want to achieve.
Many investors will look towards the buy to let market in the early days in the hope of securing attractive long-term rental income which will cover their finance costs and perhaps leave a little extra for unexpected charges. The idea is to pay down finance taken against a buy to let property using rental income and creating an opportunity for long-term capital appreciation – and a growing equity stake in the property. There are also other markets such as the redevelopment market where the aim is to buy property as cheaply as possible, renovate it and either rent it out or sell it on for a profit.
Should you expect a quick return?
There will be opportunities to acquire properties below the perceived market value if the seller is looking for a quick sale. The wider your circle of investment friends the more opportunities are likely to come your way before they hit the public market. However, those who move into the property investment market hoping for a quick return are those who are perhaps financially stretched and stereotypical risk takers.
If you look at the life and times of any successful property investor you will see a long-term investment timeline. While they may have taken short-term profits over the years these are a bonus and not generally the norm.
A perfect investment strategy
Perhaps the easiest way to look at property investment as a career is to take the example of a property valued at say £100,000. You may have been able to put down a deposit of say £20,000 and taken out a mortgage of £80,000 for the balance. If you rent out this property, using the rental income to cover your financial liabilities, then effectively the property is paying for itself and does not require additional investment.
As you slowly pay off the mortgage your equity stake in the property grows, this is before we even look at potential capital appreciation, and by the end of the mortgage you would have a debt free property valued at £100,000 plus any appreciation over the term of the mortgage. Sounds simple? Well, property investment is very simple in theory it is just finding the best opportunities and making the most of them.