When it comes to investing, bricks and mortar has been a popular choice for decades. However, with the world still reeling from the effects of the global recession and the horror of property price plunges still fresh in everybody’s mind, property investment has fallen in popularity. With daily news reports of the bailout in Europe and the slowdown in recovery in the USA, many would-be property investors are getting the jitters. However, this is exactly the time to be brave and invest. The next property bubble is just around the corner, yet property prices remain relatively low. They won’t for long so buy now, let the property out whilst rental prices are still high (thanks to would-be buyers renting to ride out the storm), and then sell during the boom when the value of your property will have hopefully rocketed. Making a profit from property investment is risky and requires grit but the rewards are plentiful.
Location, location, location
Choosing where to buy your investment property should involve more than a cursory glance at Google Maps. If you’re a first-time investor it makes sense to stick to what you know and choose an area close to where you live – this will also prove a blessing when you finish a 12 hour day of renovation and make it easier to manage if you let it out. Whether you know the area or not, it is essential to thoroughly research it. Get online to find out who lives there, who aspires to live there, and what they look for in a property – if there’s not the market for the property you intend to develop, it will be a financial disaster. Also check out the availability and quality of local schools, shops, restaurants, parks, public transport, and so on. When you find a property, draw up a plan of what you intend to do to it (or get an architect to do it for you), take it to a local agent and find out what similar properties are selling and letting for.
Spotting a property hotspot
The above information is all important but as a developer you need to buy in an area which will also become the next hotspot. Buying in an already popular area only means that you will pay over the odds for a property which will be unlikely to net you much of a profit. However, investing in an up-and-coming area means that you get to buy a bargain and eventually enjoy a substantial return when the area becomes popular and its value rockets. Buying on the edge of an area that is currently popular is a good bet as it is bound to expand as demand outstrips supply. Also look for key indicators of a soon-to-be desirable area, such as new bars, shops and restaurants opening, as well as major high street businesses such as supermarkets and coffee chains. Check out whether new developments are due to be built in the area – another indicator that it is due to become a hotspot.
Spend less for a larger profit
The right property will not only be in the right area, suitable for the right market, but it will involve spending the least amount of money as possible – remember that every little increase in expenditure will be deducted from your profit in the long run. Examine the property thoroughly when viewing, checking for signs of subsidence (big cracks in interior and exterior walls), wet rot, dry rot, and whether the house needs to be rewired or re-plumbed. All these things cost a substantial amount of time and money. If you are set on the property, ensure you buy it for a price that reflects the amount of work that will need doing to it.
Tailor a property to your target market
It’s time to put your developer’s hat on – don’t think about what you would like from a home but what the demographic you’re targeting would want. If you’re buying near a university and plan to let to students, don’t spend a good chunk of your budget on quality decor and furnishings – concentrate on creating a number of bedrooms so that it’s suitable for sharing. If you’re targeting young professionals in a commuter area, they don’t need multiple bedrooms but a larger, open-plan kitchen/diner perfect for entertaining would appeal.
How do you estimate the profit that can be achieved? Time to get the calculator out. Add the price you paid for the property to the myriad costs incurred in buying and selling a house, plus the amount you will spend on renovation (adding a 10% contingency for unexpected costs), and you’ll reach your profit. Be honest about how much you’ll spend on doing it up, or get a builder to give you a quote (even if you’re doing it all yourself you can get a good idea). Never lose sight of the fact that you will not be living in the property – your sole aim is to make money on it so, whilst you should never cut corners, don’t pay for luxury extras if your target buyers are unlikely to pay more for them.
Remember, the value of a property is only relevant when you buy and when you come to sell. Buying before a speculative bubble means that you can bag a bargain, enjoy high rental prices while everyone else waits to buy, and then receive a fantastic return when you sell during the boom.
Emily Buckley has a high interest in finance, and property management. She has been writing articles for Cordell residential projects to help out future for property investors.