When it comes to investing, real estate has always been the most secure and lucrative way of doing it. And this holds true, especially in today’s modern times. Since the financial crisis of 2008, real estate has proven to be one of the very few consistent value holders. For comparison, other such investments were precious materials such as gold or precious stones. When it comes to investing in real estate, it can seem like a never-ending quest, because it truly is so. There is always something new to learn no matter the experience under our belt in this industry. Whether we are buying, holding or flipping a property, there is a multitude of variables to consider. Still, it is not rocket science as there is one common goal it all ultimately boils down to. Return on Investment, more commonly abbreviated as ROI is the common denominator in any investment
1. Why Real Estate?
This is a question always asked by first-time investors. For those more experienced ones, it has an obvious answer. With more options than ever for anyone to invest their capital, why choose this path? The reason is that it beats the stock market and trading in valuable materials like gold or precious stones. As far as long-term investing comes, there is no equal. It is a great deal less turbulent than stocks and can provide us with long-term or even short-term profits. Obviously, this indicates that real estate is highly versatile, depending on how we manage and grow it. It will not lock us down a certain path that later on might prove to not be feasible for us.
Now that we have gone through the why let’s start with the how. The very first step in investing in any property is taking a look at our financials. What are our goals? Do we want to invest in capital appreciation, to be sold when the time is right? Or, do we want to invest in property that will bring us a long-term, sustainable income from rent? Maybe, it is a combination of the two. The answer to this question will help us determine the very first purchase that we would make. Having our goals and priorities in place from the very beginning will give us the leg up when making our first move.
3. Favorable Markets
What about the question where? Identifying a market that is not overly saturated and is suitable for us is important. These places are areas where the potential for us to invest in is the strongest. London, for example, can rapidly increase any amount we invest, but so does Hong Kong, or Los Angeles, if we are going abroad. The downside to such popular areas is that the initial investment might seem too high, especially for someone just starting out. Finding prime markets to invest in the UK can prove to be a complex task. What we are looking for is the potential for growth. Areas that have already been through extensive development will drive up our initial costs. What we are looking for is something with the lowest possible initial costs. And at the same time, that it has a great prospect for advancement. Now, that does not mean that it is a sound idea to invest anything that is dirt cheap. Less developed areas might not have the necessary infrastructure required. Even these would drive up our initial costs sky-high in an effort to make it decent and presentable.
4. Optimizing our expenses
No matter the route we have taken, it always pays to be smart and keep the money flowing out, to a minimum. And there are popular trends lately that have efficiency in mind. For example, going green is all the rage these days. If we are leasing our real estate, having good thermal isolation will pay dividends in the long run. It will cut down on heating bills and in extension, on rent. This will make more headroom for that capital to be transferred over to us if we can make the initial investment. Taxes are also another great expense for anyone living in the UK. We as landlords do have to pay income tax on earnings from buy-to-let real estate. Meaning, part of that rent goes to the tax collector. There are ways of minimizing those expenses, as buy-and-hold real estate has great tax advantages. We can write off depreciation, mortgage interest, and many more. Our tenants can pay down our mortgage, which increases equity in our property, in regular intervals. And if they pay our interests, that is tax deductible. A lean tax depreciation report is something of utmost importance and something that requires serious and professional care.
5. The tenants
The most important part of the industry is, maybe even counterintuitively, the tenant himself. It is easy for landlords to build a portfolio and ignore this quite essential element, the bread, and butter of it all. It is hard work to keep tenants satisfied. The periods that our property is occupied and is generating rent should be maximized through For comparison overall satisfaction. Periods, where we have no tenants, are called “VoidPeriods” and they basically mean that we are missing out on profit. These, obviously, our ROI should be kept to a minimum. Choosing the right tenant is the other half of
Like any investment, real estate does carry a certain risk. It is much more favourable than other, less tangible forms of investment, but risky, none the less. As long as we make calculated steps, building our portfolio will turn out to be a slow, but sure progress. It is a great responsibility with owning property that holds many rewards, behind all the hard work and dedication. By adhering to these guidelines, we can be sure in making our first step into the great industry of property investment.