Have you started to consider property investment as a source of passive income? Maybe you’ve already invested, and are looking to use the equity you’ve earned to re-invest? Or maybe you’ve been contemplating purchasing your first property for some time now, but don’t really know where to start? Well, this blog has been shared for your benefit. At Calla Property, we are passionate about education. The more insights you have, as investors, the more confident you’ll feel about investing in property. Happy Reading!
Property investment is an avenue that cannot be entered lightly. Many who are first entering the property market develop this mindset of ‘I can go out, buy a house somewhere, stick some tenants in it to pay the mortgage and make a killing!’, but this is where things can go wrong. The fact is if you’re considering getting started in property investment, you will need to have completed at least six months to a year of hard yards and preparation before you can even think about signing for and securing your first investment.
First and foremost; knowledge is power in the property investment game. It is crucial that investors are able to identify and understand what actually makes a good property investment. The truth is that there are four ingredients required to achieve real wealth through property investment. These are:
- Capital Growth; your investment option must have a proven history of appreciation in value at an above-average rate due to demand and location.
- Cash Flow; avoid over-capitalising on a property you can’t afford. It is crucial that this is managed correctly on every investment; securing the right tenants and rental income, and even creating a cash flow buffer.
- Tax Benefits; whilst this should never be a sole reason for investment, a good tax strategy can assist you in managing cash flow and decrease your tax obligations.
- Accelerated Growth; investing in a property that may need minor renovations, or trying property development; are both great ways of accelerating growth, and jumping a few rungs of the property ladder.
The timing of the market is something to be aware of within the game of property investment. Whilst timing is not the be all and end all, it certainly helps to know when to never invest, and when to always be prepared to invest. Many misinformed investors won’t even consider the timing of the market, and will base their entire investment decision on word of mouth, and ‘following the herd’. To this point, ‘following the herd’ and investing when everyone else is on the property bandwagon is an ill-advised move. In most cases, jumping on the bandwagon would mean entering a potentially oversupplied market. This leads to another point of discussion, and something that ALL investors should be aware of and considering – Supply and Demand.
As investors, we know how important it is to get the location right. But what is ‘the right location’? To answer this, investors need to be conducting research. We need to be researching and understanding the historical movements of the market in question, the primary demographic, and whether there is more demand from homebuyers than there are properties for sale. When demand has outweighed supply, the prospect of good long-term growth is displayed. Investors must educate themselves by attending seminars, seeking financial and investment advice, and reading into this, to further grasp whether the considered location is a good fit.
Finally, financial literacy is of immense importance in the game of property investment. Investors must be knowledgeable when it comes to everything from managing money, budgeting, and even balancing the books at home. Investors must be on top of the ins and outs of taxation, and the best structures to own investments in i.e. personal, company, trust, as well as the financial advantages to enjoy as an investor. It will also be of great benefit to seek the advice and expertise of a good team of professionals who can guide you through the journey to real estate riches.
Now it’s over to you! Formulate a plan; to understand what you want to achieve, be cautious; of who you seek advice from and what is being said, understand the difference between a sales person and an adviser, and make investment decisions accordingly. Most importantly, enjoy the journey of building your investment portfolio!