Property Investing Tips to make Property Investment Simpler
Investing in Property is a great opportunity, and is one of the best, and safest ways you can invest. In this blog, we will explain everything from what property investment is, why you should consider it, what you can do with your invested properties, advantages and disadvantages, your responsibilities as a landlord and some useful tips on how to invest in property.
What is Property Investment?
Property investment is when you buy properties, with the intention to either improve the property and sell it on for a profit, or more likely with the few to rent it out to tenants while making improvements over time to increase the value while gaining regular income from rent. Investing in property is very popular, and can be very lucrative if done well and managed well.
Why Should I Invest in Property?
There are many reasons why you should consider investing in property, instead of other high risk and low return on investment options. With property, you can choose exactly which property or properties to invest in, and how you want to manage them. You can either buy the property, refurbish, remodel and/or redecorate, and then sell it for a profit, or you can keep the property and rent it out to tenants, gaining a steady income from the rent paid to you, the landlord. While both of these are property investments, they have their own advantages and disadvantages to each as well, so one might be more suited to you. If you go down the landlord route, you also get to choose who to rent to and how much rent to charge. You can get help with this with a Letting Agent, and valuations if you aren’t sure how much rent to charge.
While you will get an income through rent, you will also increase the capital appreciation. This is the increase of the property’s value over time, by standard inflation in the area or by improving the property over time, such as replacing windows. With property, you can often make an instant gain on your investment simply by buying properties sold cheaply.
Investing in property is becoming increasingly popular because it is one of the best ways to secure an income from an investment. An income that you can likely live on. Property investing is one of the best types of investment, especially when renting out the property, as the monetary gain is steady and likely larger than you would get from stocks, and so even including times when you don’t have a tenant, the property comes out on top for return on investment.
Why should I Invest in Properties compared to Stocks?
Investing in Properties and Stocks are entirely different, and both come with their own positives and negatives, so one will likely fit your requirements better than the other. It is good to remember that both of these can be affected by recessions and other unpredictable events such as the Covid-19 Pandemic, which had a sharp decline on both real estate and stocks since the world came to a grinding halt.
It is safe to say that more people invest in the stock market than in property, but that is largely down to the fact that stocks are quick and easy to get, and require much less of an investment than buying a property. Stocks also require very little time in comparison to property management as well.
With Stocks, you are essentially buying a tiny part of the company, and you make money through dividends, which are a share of profits, shared among share and stockholders, and through value appreciation as the companies stock increases. Although the return on investment (ROI) with stocks is unpredictable and is often lower than expected. There are ways you can increase your return, however, this would likely take more time a good knowledge of the stock market.
The Stock market is subject to different risks than property, such as Market, economy and inflation. Stock values can be volatile and can change drastically as their prices are subject to fluctuations in the market. These can be caused by company-specific events or possible geopolitical changes. For example, companies that operate in different countries, have to abide by the laws, taxation and rules of that country. This means that the value can change drastically if the tax laws change or are revised, or the countries central banks interest rates change too.
For the stock exchange, as an investor, it is highly encouraged to diversify your stock portfolio. Do not put all your eggs in one basket, as if that stock goes badly, it can be detrimental to your finances. Instead, spread your eggs over different baskets, for example, invest in different businesses and also in different industries to avoid losing money.
The overall pros and cons of stocks are below. One of the biggest pros in comparison to investment property is that stocks are liquid, meaning they are easy to buy and easy to sell, meaning you can rely on them in an emergency.
- Highly liquid
- Easy to diversify
- Low transaction fees and costs
- Easy to add to tax-advantaged retirement accounts
- More volatile than real estate
- Selling stocks can trigger big taxes
- Some stocks move sideways for years
- Potential for emotion-driven investing
Real Estate can be a better option for investment than stocks, due to it generally being much lower risk, provides greater diversification and often yields better returns. Although investing in property requires a lot more money than stocks, and you will likely need to save up money to then buy a property with a substantial amount of money.
When you invest in property you gain property or land. Most property investors make their money by renting out the property and collecting rent from the tenants, although some investors buy properties, generally, one that needs spruced up a bit, or refurbished entirely if they have a big budget and then complete work on it to increase the properties value, then sell it. This method is referred to as ‘House Flipping’.
Property is a tangible asset, compared to stocks, meaning it can be used as leverage to get loans and can be managed and controlled. This is one of the appealing factors that most people enjoy about property investment.
One of the biggest overlooked elements of investing in properties is that it requires research. Your research can make the difference between a great success or a huge loss. You should research areas, properties available, standard rent charges for different sized properties in different areas, and the general cost of contractors and standard work you might need to be done, such as Plastering, Painting and Floors. By doing all this you will be able to get a good idea of the overall costs you could face, in comparison to the rent you could charge, or how much you could sell it on for. Properties are not easy to liquidate and selling them is generally a long process as well, so you should be sure you can afford the property and the costs of managing it, before making a purchase.
Just as the Stock Market, Property has its pros and cons, which we have listed below. While the property is not a liquid, easy buy, easy sell investment like stocks, it does have good advantages such as tax benefits and gaining you leverage in your assets. They do cost considerably more than stocks but are much lower risk and general have a steady passive income, and the property can also naturally increase in value over time.
- Passive income
- Tax advantages
- Hedge against inflation
- Ability to leverage
- More work than buying stocks
- Expensive and illiquid
- High transaction costs
- Appreciation isn’t guaranteed
What can I do with Property Investments?
We have touched on this subject briefly, but essentially you have three options; House Flipping, Renting and Renting while improving the property over time.
Hous Flipping as we previously explained is when you buy a property with the intention to refurbish it, redecorate it or even build extensions on it. You buy a property with the sole purpose of improving it to increase the properties value, and then once work is complete, you sell it for a profit. This version of property investment is carried out, but not as often as the other options. This is because you will need a large amount of money to not only buy the property but to also complete the work needing to be done o the property too. This could include building and interior materials and then spare time to do the work yourself, or paying more money for contractors to complete the work for you. Once the work is done you will gain a profit, however, if the economy goes south or something unpredictable such as Covid-19 hits, you might have to wait to sell to make a profit. This requires big-spending, to get one big return on investment, and will not provide you with a passive income.
Renting the property is much more popular, as you can gain a passive income. For this, you still need to pay a large sum for the property and might have to carry out small interior jobs, or larger-scale projects if you choose to. However, after this, you can easily rent it out and get tenants in, who will pay rent to you, gaining you that passive income. Over time the property may naturally increase in value as well.
The third option is the same as the previous, but with an extra element. While renting the property out, or during times when you have no tenants, you can make larger improvements to the property, such as replacing flooring, installing new windows or maybe even an extension. All of these larger projects will cost you a bit more, but in return, you will be increasing the value of your property a lot. By doing this over time, means you can plan to do these improvements when you have the money, while also gaining from the rent over time. This is likely the most popular option as you can increase the property value when you are able, you still gain a passive income, and making these improvements may also allow you to increase the rent charges as well.
All three of these options are property investments, and you are free to choose exactly what you want to with every property.
What are the Benefits of Investment Property?
Below we will explain some of the best parts of investment property.
You can choose what you want to do with each property. You can rent it out, rent it out with a view to improving it over time or house flip it. Alternatively, if you have a few properties you can do all of these, maybe rent out two properties and use the passive income from that to do a house flip project on another project. These are your properties, so you can choose the path your want to follow.
As we’ve mentioned stocks are highly volatile since they depend on so many aspects, they can go down very quickly and unexpectedly, which could make you bankrupt if you aren’t careful. In comparison, investing in property is very low risk. Sure there may be some risk involved, such as becoming a landlord, dealing with tenants and managing properties but these are much simpler and much easier to manage than the ever-changing landscape of the stock market.
If you opt to rent out the property, you will gain yourself a new source of income. The income will be steady when you have a tenant. The rent you charge will likely cover the mortgage if you have one, and with the odd maintenance cost here and there, you will still gain a decent amount of income for doing very little.
While renting the property out, and gaining that income, over time the property itself can increase in value. Research will help work out where is an up and coming area, or developing area, as buying property early on in this location could make you a lot of money. For example, buying a property in a growing town near a city, or in a smaller, growing city will likely increase in value as the location grow, compare to buying a rural property, where improvements you make are likely the only source of capital growth.
A Property is a tangible asset, which can be used as leverage to get loans if needed. Also having property and land is a great investment as there is a limited number of properties, but always a demand for housing, a demand that is increasing.
What are the Disadvantages of Property Investments?
As with everything, there are of course disadvantages to investing in property. Let’s have a look at some of them.
Properties are not a liquid investment, unlike stocks, you can’t just pull your money whenever you want or need to. Selling a property is obviously an option however, selling properties can take a long time.
Properties or land do not come cheap. In comparison to investing in stock, you need to have a large sum of money to spend on the property, which will likely involve saving up before investing.
Maintaining a property also costs money. You can get the tenant to pay their utilities themselves, which is very common in the UK, however when you have no tenants you might have to cover this cost yourself. When you have a property, with a tenant or not, you are the landowner, therefore any building or trade work will be up to you to cover, such as plumbing, roofing and paint.
If you buy a poor property or a property in an undesirable location, you may find it hard to get tenants or buyers, meaning you might not get a quick return on investment, if you get any at all. However, this can be avoided by doing your research and getting help from professionals.
While rude and problematic tenants are rare, they do exist. Even when interviewing and screening tenants, you don’t know how they will act once on the property after being accepted. You may need to have money spare to fix up the property after some tenants leave.
What Options are there to help with Managing Rental Property and Property Investing?
Investing in property is done all the time, but due to a large amount of money required it can be a daunting process. You can easily get help with the process, by researching and even by contacting local solicitors to the area you are considering buying in, especially if you are not local, or know the area well. They will be able to help you find a good property in a good neighbourhood.
Research by yourself is also vital. As e have said before it is probably worth researching in how much standard interior jobs will cost, along with the average property price and renting prices in different areas. You should also look into the location, and visit yourself, to get a feel for the area, and see if it has potential, or if the location is a little run down, as this will make it harder to sell and rent the property, even if you overhaul completely.
Finally, if you decide to rent a property out, you can always hire a Letting Agent. Letting Agents general over two options, a Let-Only service where they will market the property, vet a tenant and collect the first month’s rent, and a Full Management service, where they will collect rent and manage the property on an ongoing basis. Letting Agents are especially useful if you don’t live near your property, are inexperienced in renting out and managing properties or aren’t able to drop everything to deal with an emergency repair within your property.
If you decide to get a Letting Agent, make sure you find someone reputable, as anyone can set themselves up as a Letting Agent.
As a Landlord and Investor for your Investment Property, What are your Responsibilities?
Being a landlord, especially a first-time landlord can be confusing as you have certain responsibilities you should be responsible for. To help you out with our property managing, we have noted down a list of parts of the home you are responsible for when it comes to repairs. Below are the standard responsibilities of a landlord for a house.
- The Properties Structure – This includes everything structural, from walls to windows and doors.
- The Properties Exterior – This includes primarily the roof, guttering and fascias.
- The Properties Interior – As a land lord you are only responsible for Basins, Sinks, Baths and other sanitary fittings, including Showers, pipes and drains.
- Heating and Hot Water – You are responsible for the boilers, central heating and fires.
- Gas Appliances – If you have any gas appliances, they are your responsibility. This could be Gas Cookers, Pipes, Flues and ventilation. You will also need to have an annual gas safety check.
- Electrical Wiring – You would be required to repair this, and also have a periodic safety inspection of the electrics.
- Damaged While Repairing – Anything that is damaged, while repairing any of the above items, is also your responsibility. This could be if a rood leaked, it may have damaged plaster and decoration. It would be up to you to fix that.
If you are the landlord of the flat, then some of the responsibilities will be up to the owner of the building. These will be detailed in the lease documents. If you are a landlord of an HMO property, however, you have a few extra duties, such as fire safety, legionella risk, waste disposal and exterior areas if any.
As a landlord you are not responsible for;
- Garden Maintenance – even grass cutting or weeding
- Repairs to anything the client has brought into the property
- Minor Maintenance – Tasks such as replacing a lightbulb or fixing dripping taps are considered small maintenance and are up to the tenant to be responsible for.
- Damage caused by the tenant or their visitors, or damage caused by misuse of the property. This may well include some elements a landlord is normally responsibly for in their property, but in the situation where the tenant has damaged it, you could charge the tenant for the cost of the repair.
Property Investment Tips
Finally, let’s go over some tips to help you see if you are prepared to invest in property or properties. These tips will be a mixture of property research tips, investment tips and some things you should consider before investing in property.
Are you ready to be a Landlord?
Being a landlord itself doesn’t require too much work on your part if you have only one property, however, having tenants to deal with along with finding new tenants at times can take time. You also need to be prepared to carry out maintenance on the properties at short notice. If you want to invest in property, but have no experience being a landlord or don’t feel comfortable doing it yourself, you can always get a Letting Agent to help.
Do you have debt?
If you have debt, even if it’s just students loans, buying a property might not be the best move for you right now. You would need to calculate the amount of income you could receive from the property, and work out with your outgoings if you can still afford the debt payments.
Downpayments on an investment property can be considerably more than owner-occupied house downpayments. You need to do your research, and make sure you can save up enough to afford the down payment on the property.
As we have mentioned several times, research is an invaluable tool when it comes to investing in property. You should research prices, rent costs, along with standard trader costs to see if you can afford them. You also need to research locations. You don’t want to be stuck with a property with lower rent or selling price because of the location as that is likely going make selling and renting harder and will lower the cost of the property.
You should definitely get Landlord Insurance to cover your new property. Landlord insurance generally covers damage to the property, lost rental income and liability, in case a tenant or visitor gets injured due to property maintenance issues. It is worth it and you should research your options for this and your property or properties types.
Standard maintenance will eat through some of your income, however, you may have to deal with emergency repairs such as roof damage or burst pipes. You should plan for these, and set aside some money periodically so you are prepared if you need to fix an emergency like these.
Avoid Fixer-Upper Properties
While the property will likely be cheap, you will likely end up spending more to renovate the property. Unless you can do the work yourself or know someone who can do quality work cheaply, it’s not recommended, especially for your first property. Instead look for a property being sold at a low price, but with only minor fixes needing to be done.
Know the Laws and Obligations
Being a landlord, you should familiarise yourself with the laws and obligations related to being a landlord, rented properties and the tenant’s side too. By doing this you can learn about your tenant’s rights, your rights, security deposits, lease requirements, and eviction rules and notices.
Overall, Property investing has a lot of different advantages and disadvantages it, however, when it comes to investing, property is one of the safest options. A lot of the downsides to an investment property can be managed through research and reaching out to get help from local real estate agents, getting in touch with someone who has done some real estate investment and by working with a Letting Agent.
Property Investment is definitely a great way to invest your money, and if you do your research, you could end up with properties or properties that will make you a lot of passive income. Property investment is popular in the UK, with lots of areas going through revitalisation projects and towns growing as well.
We hope this article was helpful in getting you started towards property investment, and in informing you about all the options, pros and cons, and things you should do and think of before investing in property. Good Luck with your investments!