All investment carries risk, however good property investors manage the risk by doing their homework and establishing likely costs and likely returns and preparing investment appraisals. Good returns can be made from property investment however never invest in property blindly as the consequences can be devastating
When interest rates are fixed at extremely low rates (which they have been in the UK for a number of years), any return from money in your bank or building society account is also likely to be very low. Those who have spare money sitting in their bank and building societies maybe looking for alternative ways to maximise their investment. Stocks and shares offer an alternative investment option, which are capable of offering healthy returns, however few have the knowledge or are prepared to take the risk as the impact of volatile world markets can just as easily wipe out an investment as it can make money. In times of austerity where everyone is looking to squeeze as much out of every pound and penny as possible, property is portrayed in the media as a ‘safer’ way of maximising an investment.
Over the last few years the amount of property related programmes that appear on our television screens has increased significantly. These programmes have helped to paint a picture that anyone can invest in property and anyone can make large sums of money. Whilst this is partially true, this message is also misleading as to maximise a property investment takes knowledge, skill and money. Property is a sound investment, which can provide exceptionally good returns, but only if you know what you are doing! Like myself I am sure you have read/heard of many examples of those who have listened to this message and decided to ‘dip their toe in the water’, without any real knowledge or experience and have ended up losing large sums of money, which in some cases has sadly led to repossession and even bankruptcy.
The most recent census, published by the Office for National Statistics, shows the number of private renters in England and Wales increased by 88% between 2001 and 2011. Wily investors quickly grasped the opportunity to ‘get a slice’ of this market and the buy to let market boomed. Even today the independent reports;
‘The buy-to-let sector is booming with landlords tempted by lower house prices, rising rents and improved mortgage deals. Homeowners can no longer rely on house prices rising steeply, but with rental yields on the up, taking advantage of high tenant demand and low supply is an increasingly popular option….. First-time buyers are still struggling to get on the property ladder and more people are being forced to continue as tenants’
Reading the above you could easily ask, ‘how can I lose?’ however the answer to that is very simple; ‘quite easily’. The first thing to note is that although we are likely to see house prices continue to rise over the next few years, these rises are likely to be modest and we are highly unlikely to see the sharp rises of the late 1990’s and early part of the millennium. Property investment during these times was unique in that large profits/returns were being achieved just by the accelerated nature of property price rises. It was quite possible to buy a property and hold it for say a year or possible two years, then sell it on for a large profit without doing any work to it whatsoever. Many people will tell you that they made a wise investment decision, when in fact the truth of the matter is they just got lucky and were able to purchase a property when property prices were increasing at unprecedented levels.
Times have now changed and those wishing to invest in property, particularly in the buy to let market, need to be much more cautious. A great deal of research needs to be done to establish local market conditions. What are similar properties selling for in the local area? what are rental levels in the local area? What market will you be targeting? Will it families, students, first time buyers, young professionals etc? Answers to these questions will help to provide figures, which should be used to calculate the amount of investment needed as well as the likely return and payback period. If you propose to buy and sell you can project likely profit, if you propose to rent you can calculate likely rental yield.
In addition you will need to carefully assess the condition of the property, work out what repairs and improvements will be required and estimate how much this will cost. This is generally where many investors either under estimate or mis-calculate, resulting in investment returns being significantly reduced or sometimes being eradicated completely. If you do not have sufficient experience or expertise to establish these building costs then do not guess. Always seek the advice of a qualified person, which may cost you some money, however this will be money very well spent. Anyone entering the buy to let market and therefore becoming a landlord, will also need to familiarise themselves with the raft of responsibilities (both statutory and otherwise), in respect of managing and dealing with tenants and also maintaining their property to a safe and habitable standard. Depending on the types/size of a building there may also be additional costs in meeting statutory requirements. As an example, refurbishing and letting a property as a House in Multiple Occupation (HMO), will require additional fire precautions and other safety features that other properties may not require for which costs will need to be factored into an investment appraisal.
Statutory permissions such as Planning, Building Regulations and Party Wall, together with costs for Estate Agents, Solicitors, Letting Agents, and other professional advisors will also need to be added. Basically, property investment, particularly buy to let can be a complicated and expensive process, which needs careful consideration before committing to invest. It is fair to say that the returns from good property investment can be far higher than can achieve by leaving your money in your bank or building society account, and generally less risky than investing in stocks and shares. This however is dependant on good research and planning and getting the right advice before deciding to make the investment. All investment carries a risk, however good property investors manage the risk by doing their homework and establishing likely costs and likely returns and preparing investment appraisals. Good returns can be made from property investment, however never invest in property blindly as the consequences can be devastating.
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