5 Factors to Consider Before Investing in Property
There are a multiplicity of reasons people might invest in property: cash flow, tax deductions, real estate leverage, and hopefully, a steady increase in the property’s value. Below are 5 things to consider before making the move.
I. Are you going to be settled?
This one doesn’t apply to those of you who are planning to invest in rental properties specifically. For those of you who want to settle down in a home of your own, you must know for certain that you have found the right place for you. It’s also important to think about whether you see yourself bringing up a family in the property; investing in real estate is a big commitment, so it’s important to go into it with an eye towards the future.
II. How affordable is this?
Positive cash flow is an absolute must in the real estate game. If you want to stay above water, you’ve got to make sure you’ve got the resources to do so. Make sure what you’re putting into the property doesn’t get close to the rent you’re charging. If you’re planning on setting up a bills inclusive property, you’ll have to account for that as well.
III. Is this the right area?
People pay for location, so you’re going to want to invest in a popular area to see the best results. Look at the market for certain areas to see whether there’s potential there for regular rent increases. Remember though, if you’re renting, you’ve got to keep your tenants happy; don’t buy in the centre of a big city if you don’t want noise complaints, for example.
IV. Do you really know the market?
It’s all well and good having the money behind you to invest in property, but you’ve got to have knowhow too if you want the best results. What are the prices like in the area you’ve chosen to invest in? If they’re in your budget, then great, but that’s not enough; wait and see if they fluctuate. Know the motions of the real estate market before you go diving in. You could save yourself a killing by just having some understanding of the history of local house prices.
V. How much rent do I charge?
As a general rule of thumb, landlords generally charge between 0.8% and 1.1% of the property’s value when renting. For example, if your real estate is valued at £150, 000, you’d want to be charging tenants somewhere between £1200 and £1650 a month. However, this rule isn’t absolute, especially in more expensive properties. Such a rule of thumb as this would make renting impossible for many. Play it by ear when you need to – read the market and find out what other landlords are charging for rent in the local area. Sometimes your freedoms are limited too – whether your desired area has any rental control laws might be a further consideration worth making prior to investment.
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