Buying an investment property can be an exciting and rewarding experience, as well as an extra source of income every month. But it’s not a decision that
should be taken lightly. Here we take a look at five of the most important things to consider when you’re buying your first investment property.
1. What can you afford?
The first question you have to ask yourself is what type of property you can realistically afford. If you’re not purchasing an investment property
outright, which you’re unlikely to be doing as a first-time buyer, you’ll need to find out how much you can borrow from a bank or mortgage lender.
They are highly unlikely to lend you 100 percent of the cost, so you’ll also need to find out how much deposit they expect you to pay up front.
You will also have to make sure you budget for additional costs including legal fees, tax, and any repairs or improvements you may need to make to the
property before you can rent it out. In addition, it’s vital to have some money put by at all times for emergency repairs that could be needed at any
time once you’ve let your property.
Most importantly, you should seek advice to determine if your desire to purchase an investment property (or any investment for that matter) fits your overall investment strategy – If you don’t have a strategy, you are essentially relying on luck and emotion to make your decision. Knowing the future implictions of your present financial decsions is vital information. We, at Strategic Planning Solutions, can formulate a sound strategy for you, which can help make smart decisions with your money, incorporating both your financial and lifestyle goals. For
more information on the benefits of Strategic Advice, please click here.
2. Residential or commercial?
Most first-time landlords invest in residential properties, but commercial properties can be a good alternative if you aren’t able to be a hands-on
landlord. Commercial tenants will refurbish and maintain the property to suit their business needs. Residential property requires a lot more maintenance
by the landlord, such as redecorating every time a tenant moves out.
However, commercial properties are a lot more expensive to buy, and there is also more legal work involved, so you can expect to spend out more on lawyers’
fees. Commercial properties do typically bring in higher rents though, and the leases tend to be much longer than those on residential properties,
so you won’t have the trouble of finding new tenants so often.
3. Location is everything
If you’re buying a residential property as an investment, you should make sure that it’s in a good neighbourhood with low crime rates, where you won’t
struggle to find decent tenants. Buying in an area where people actually want to live will also allow you to charge a higher rent. Ideally, make sure
your property is located close to amenities such as transport links, shops and schools, to make it appeal to a wide variety of people.
If you’re investing in commercial property, take a look at how well the businesses in the area seem to be doing overall, and pay particular attention to
which industries are thriving. This will give you a good idea of your property’s potential.
4. Who will you be renting to?
Different types of tenants have different requirements and budgets, so before you go ahead and purchase an investment property, it’s important to think
about who that property is likely to attract, and whether or not they are what you’re hoping for.
For example, families are likely to want a house rather than an apartment. They’d be more attracted to an unfurnished property because they’ll be looking
for somewhere they can make their own, with a view to settling there for the long term. Apartments are more suited to single professionals or couples,
so it’s worth making sure an investment apartment has easy access to major transport links so your tenants can easily commute to work.
A fully-furnished house in a less expensive neighbourhood will most likely attract students, especially if several rooms could easily be turned into additional
bedrooms – so be prepared to have plenty of money put away for repairs!
5. How much money will it make you?
Unlike buying a property you plan to live in, decisions about investment properties should be made with your head, not your heart. Find out what rental
fees other similar properties in the area are bringing in. Is it as much as you are hoping to make, once you’ve budgeted for any unexpected repairs?
You should also try and purchase your investment property for the lowest possible price – don’t be afraid to haggle! The less you pay for a property, the
greater your return on investment will be.
6. Once the deal is done, make sure that you have your personal risk planning sorted to financially protect you against unforeseen circumstances pertaining
to your health. Click here to find out more about how
we can help in this foundational area of good planning.
Lastly, please feel free to contact us to arrange a time to chat about