How to Buy an Investment Property: 10 Things You Need to Know
Property is one of the safest and most-valuable investment opportunities. It neither has a considerable risk like stocks or crypto nor requires a huge investment amount.
During an economic crisis, real estate doesn’t get affected as much as other types of investments. That’s because the effects of economic sluggishness depend on the type of property you’re investing in. For instance, hotel investments are riskier than investing in office buildings.
If you’re considering buying an investment property, your mind is in the right place. There is no better time to enter the market and build your property portfolio as an investor. But don’t let the excitement make you overlook a few crucial factors.
Here are 10 key things you need to know before investing your life savings in property investment:
How to Buy an Investment Property
1. Determine Your Long-Term Goal
Property investment doesn’t give you quick money. Instead, it’s a long-term investment and requires the investor to think in the long run. To maximize your wealth, you must start by setting a long-term goal and be consistent in achieving it.
An investor should allow your property to mature over time and gain value. After all, your goal would be to yield the maximum capital appreciation from your investment, right?
You can also generate passive income from your property through rental gains. The higher your property’s value, the more rental income you will get.
No matter what you plan to do with your property, ensure it stays aligned with your long-term goals. Your goals are your direction in every decision you make in the investment process.
2. Consult a Financial Advisor
While it’s good to research independently, it’s also essential to consult a financial advisor for the expert’s opinion. These professionals have extensive knowledge about every aspect of property investment.
You can be frank with them and seek their guidance in areas you feel stuck in. Whether it’s about taxes or the risks involved in the process, a good financial advisor will offer you 24/7 support to help you make the right choices.
But before hiring an advisor, ensure they’re the best in the industry. Only the quality ones can give you a clear idea of your goals and realistic investment expectations.
3. Consider International Investments
Many buy investment properties overseas when the local market doesn’t seem so profitable. They mostly choose countries with a currency weaker than their domestic country. This way, they get a significant profit margin after converting their revenue into their domestic currency.
You can also consider making overseas investments. But before making any decision, don’t forget to consult with your financial advisor.
It’s recommended to consult those with years of experience dealing with overseas property investment opportunities. Many financial advising companies also have offices in multiple countries to help such investors.
So, if you’re considering exploring the international market, ensure you’re at the right door to get the right information. Never choose a financial advisor without researching first!
4. Set a Budget
Always set a realistic and practical budget for your property investments and stick to it till the end. Even if any property seems “the one” but is out of your budget, don’t overstretch yourself to get it. That’s the biggest mistake most beginner investors make.
Only look for properties you can afford to prevent monetary problems in the future. For instance, if you aim for a property that is out of your budget, you may struggle to keep up with your repayments and manage the property side by side.
You must also be prepared for any unexpected decline in the property’s value or performance in the market. For example:
- What if you need immediate cash and your property hasn’t reached the amount you expected?
- Can you comfortably spend a few months with no rental income?
When you stay within your budget, you can leave additional room for all the hidden costs of the property. This will reduce your financial burden and improve the efficiency of your investments.
5. Choose the Right Property Type
As a property investor, you must evaluate different market property types or sectors. There are many options available, each with varying pros and cons.
For example, residential property and commercial property. Mostly, first-time investors choose residential properties as they are well-established, profitable, and highly demanded. Plus, you get many sub-options, such as build-to-rent properties (BTR) and purpose-built student property (PBSA).
You can invest in multiple sectors at once, but as a beginner, it’s better to stay with one. Research and study the pros and cons of every property sector to make an informed decision. You can also take help from a professional financial advisor.
6. Evaluate All the Key Factors
Location plays a major role when buying an investment property. Of course, choosing a city or neighborhood that’s expected to reach reasonable prices and yields in the future is an intelligent investment strategy. But only considering the price index isn’t enough.
When selecting a property location, you must evaluate several other vital factors, especially the supply index. Unfortunately, many beginner investors overlook this factor in excitement, but it should be an essential part of your decision.
The supply index particularly matters when determining the growth projections in your chosen sector. For example, a town may have promising growth expectations, but do they extend to your property sector?
Therefore, choosing a location where the rental property demand exceeds the supply is ideal. This means buying a built-to-rent property in those areas where the residents don’t have many alternatives available compared to the population size.
This ensures that your property will be in high demand among local tenants, and you’ll have a consistent revenue flow.
7. Stay Up to Date About Recent Tenant Trends
Consumer and market trends keep changing over time. Knowing all the recent ones can help you make the right choice regarding sector and location.
Staying up to date about new trends also helps you make the required changes and upgrades in your property according to the tenant’s demands. It also enables you to develop effective investment strategies that keep your property relevant to the market.
For instance, many new tenant trends emerged during COVID-19. People began preferring those properties that are not overcrowded and have all the healthcare facilities nearby. They also prioritized more outdoor spaces.
The concept of shared workspaces also became vague, with more preferring social distancing and working from home. As a commercial property investor, this would have been a major concern for you in those years.
Thus, as an investor, it’s essential to know what tenants want to win them over the long term. It will also give you an advantage over your competitors.
8. Opt for a Fully Managed Property as Starters
As a beginner, it’s better to choose a fully managed property for investment. That’s because managing an investment property requires a tad load of work. So, even if you have lots of time available, it’s better to avoid the additional responsibilities and burdens.
And the list goes on. You may not realize it initially, but determining the time and cost incurred in fulfilling these responsibilities also puts extra financial stress on the investor. So it’s always the best option to choose a fully managed property whether you invest domestically or internationally.
The developer or the property management company will take care of the daily management. As a result, you’ll have more time to think about investing in the right place and maximizing your wealth. But more importantly, you’ll have a clear view of the ongoing costs at the beginning of your investment process.
9. There Is No Ideal Time to Invest in Property
Most people drop the idea of investing in property in times of economic uncertainty. It’s understandable. Why would someone want to invest in something expected to lose value on the practical ground?
The reality? Every time is ideal for property investment. Investing at a time when others typically don’t can give you unimaginable returns, especially in the property investment market.
The real estate industry encompasses all such constraints. Even in the scariest and most challenging economic conditions, the market produces a greater return on investment (ROI). In fact, property investment can help you make a steady regular income in hard times.
If it’s still unclear to you, remember this one statement in mind. Property investment is a long-term process based on the “buy low and sell high” rule. Therefore, entering the market when nobody else is considering it can enhance your chances of making a solid ROI in the long run. Don’t let the economic uncertainties hold you back!
10. Only Do Business With Credible Agents or Developers
Transparency is the foundation of a developer-investor relationship. If both parties don’t trust each other, things won’t work out in the long term. So as an investor, you must only do business with those agents and developers who seem transparent from the beginning.
Credibility is the most important virtue of a real estate agent and developer. Always research the company’s background, customer reviews, previous work, success rate, and other crucial factors before hiring.
Don’t forget the price factor here. Finding an agent with a lower price is good, but if it’s too low, know there is something fishy. Try to find the reason behind it. If the agent doesn’t seem to talk about the bush, move to the next without thinking twice.
Property investment is a great way to maximize your wealth. It’s a long-term process that continues for years and benefits you all along. For example, you can buy an investment property and give it for rent to receive a regular monthly income.
But, as exciting as it sounds, you must consider a few crucial factors before deciding. Always consult a financial advisor before getting started. Then, set your goals, establish a budget, choose the right property type and location, consider all the key factors, and stay updated about recent market trends. Also, never be afraid to invest in a property in times of wider economic uncertainty!
Featured Image Credit: Tierra Mallorca, Unsplash