Property Investment: what you need to know

It’s scary the number of the people who keep asking me for tips on how to get into property investment.

Scary, because at the moment we’re at the end of the property cycle - a downturn in property price growth.

Which means the unwary investor looking to invest in property now could be looking at significant loses in the short-term.

Let’s looks at the cold realities at present:

1. Domestic house prices in the UK are slowing to a stop
2. Commercial property prices are already falling
3. The Buy To Let market is drying up
4. Predictions of a crash remain persistent
5. The Credit Crunch is tightening up lending

The overall picture is bad, but that shouldn’t mean to say that property investment is still a bad idea - on the contrary, it simply means that those looking to invest in property need to take particular care.

Unfortunately, too many people seem fixated on yesterday’s price growth, today’s available equity - and not enough on tomorrow’s risks of deflation.

Basics of Property Investment

It’s ironic that most people take more care in how they invest in stocks than in property.

Somehow, placing £50k in savings into equities requires more time, effort, and research, than ploughing in their £250k property equity built up over a lifetime into property investment.

The familiarity of property, and watching it grow over decades, lulls people into a false sense of security with property investing.

While there are still a lot of similarities and concerns with buying a home, and investing in a property, there are also some huge differences.

After all, property investment is still investment, and investment always carries risk - a level of which normally is not a concern when buying a home.

However, there are some basics you can apply, familiar to home buying and general investment, you can apply to property investment, to help minimise your own exposure to risk.

1. What do you want?

Think about it. Why do you want to invest in property? What returns are you looking for? Over what period?

2. Think about the future

Additionally, what conditions do you need to account for in the future? For example, what if you ever need to cash in the property?

What if you want to live there yourself one day, or else accommodate a relative, such as a son or daughter?

3. Remember it’s a fixed asset

Also remember that property is a fixed asset, not a liquid investment. That means it’s not money you can easily tap into quickly.

While you could sell your property at very short notice if you desperately needed to, expect a lower buying price if you need to sell for cash quickly to a home buying company.

Simply put, make sure you plan for the long term - and its eventualities - with your investment.

4. Research! Research! Research!

Study and follow progress and developments in the property market in any areas you are looking to target. Observe trends and watch how they develop.

It doesn’t matter whether you are looking to invest in the UK, or overseas property investment - ensure you’re comfortable with the area you are considering investing in.

Visit and stay over, explore the surroundings, and get an idea of the real potential of the investment.

Learn first hand if the area is really up and coming - or going down the pan, and taking your investment with it.

5. Avoid sales pitches

Don’t throw your money into every passing “investment opportunity” just because someone says it is.

Put your money into an investment only because you already decided yourself, after researching it first.

Ignore big “property investment” presentations and seminars - these are often little more than travelling circuses, filled with salesmen looking out for their fat commission cheques first, and your interests last.

6. Plan for costs

All too often people think only about the returns and not the costs.

You will need to ensure you factor in various costs, not least maintenance and repairs on the property to keep it in shape.

And if renting out, costs from the property management firm.

Also consider insurance costs, not simply Buildings Insurance, but also life insurance if covering a mortgage.

7. Don’t bank on permanent occupancy

If you invest in Buy To Let, you need to factor in less than 100% occupancy.

That means sometimes your property will be vacant, with no rental income. How does that affect your income projections?

Also think about how that impacts your exposure to Council Tax.

8. Plan for taxes

There are a number of tax implications with investing in property.

Firstly, earning income from a property impacts your Income Tax.

Secondly, as an asset, if you sell it you may be liable for Capital Gains Tax.

And did I already mention exposure to Council Tax on vacant property?

9. Interest rates

Do ensure you factor in interest rate rises and your ability to keep up repayments.

This is all the more important as interest rates and inflation are currently facing upward forces, which can raise mortgage interest rates, your repayments - and lower your returns.

10. Stay affordable

Whatever calculations you make on all of the above, don’t throw every penny into your investment, leaving you with no money spare.

The unexpected loves to happen, and you never know how your own personal circumstances may change.

So make sure that, after any property investment, you still have plenty of money spare so that you not only have the opportunity to spend on what you want, but also on what you need, when you need to.

Property Investment is an Investment

The point really needs hammering out - property investment is an investment.

That means you take all due care and precautions before you start investing in property, and you do so only because you have turned yourself into something of a passing expert, if nothing else on the target area you’re looking to invest in.

I find it astonishing when people tell me they have a few hundred thousand pounds in equity, and want to invest in the property market - but know little about it, and don’t appear to be looking out for some of the basics above.

Property investment is a serious business - your savings and equity are serious interests. Don’t throw it all to the sales equivalent of that bloke Bob you met in the pub.

Take control of your decisions by making sure you fully understand the why, what, when and how of property investment from every angle, to ensure that your investment is reasonably sound, so you can sleep well at night.