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The Basics of Property Investment

property investmentStepping to the investment property market can be tricky, and demands as much skill as investment in the stockmarket. Buying the right investment property can lead to positive cash flow and tax benefits, but buying the wrong investment property can be disastrous. Before getting into anything, you need to know a number of basics about the investment property market. With these property basics you can begin to better understand how the market works. Successful investment in property requires an assessment of the current and future condition of the economy and its potential impact on the property being considered for investment. Before looking at investment property, you need to know about:

Property categories

There are a number of categories of investment property, each with its own advantages and disadvantages. Obviously, one of the main areas of investment property is the residential property market. This includes houses and other residential living spaces. This is one of the biggest investment areas, involves both buying to renovate and buying to rent. The residential property market is where smaller investors start, as it is the easiest and most affordable market. Apart from residential property, the other main category of investment property is commercial property. Commercial property is split into three main areas:

  • Retail property, such as warehouses and high street shops>
  • Office property
  • Industrial property

Obviously there are other categories as well, with investment property such as pubs and cinemas falling into the leisure category. However, most properties can be split into residential and commercial property. One of the key property basics is to understand their differences, and to decide which market you are more likely to go into.
Location, Location, Location

business newsAlthough this phrase might seem like a cliché, it still holds a lot of value in the investment property world. Perhaps the most important of all the property basics is an understanding of location. Location is what governs a lot of the pricing of investment property. It is why property in Newcastle is so much cheaper than London. To understand property investment, you need to understand the significance of location. Location is an ever-changing issue, as areas become better or worse, and so prices change with them. When looking at investment property, the best locations are those that are improving but have not yet attracted many other investors. This may sound easy, but in practice it is hard to do. The best advice is to find an area you want to invest in, and study it as much as you can, to learn about the trends and fluctuations in prices.

Leasing

Before buying any investment property, you need to understand the basics of leasing and renting. Leases are important because they set out the terms under which your tenant will occupy the property. When signing or being part of lease agreements, you need to take into account the tenant’s financial strength, in case of default, as well as the condition of the property. A property that is modern and well maintained will be re-let much more quickly if the current tenant defaults or moves on. Understanding this will help you to get the best deal with a tenant and avoid tenant failure, thus maintaining your investment property income.

Suitability

When investing in any property, you need to make sure that its specifications are suitable for what you intend to use it for. For example, if you are buying a large house and intend to rent it as a number of smaller flats, you need to make sure it has the rooms and layout for this. Also, if you invest in commercial property you need to make sure that the building is suitable and that its specifications can de added to or adapted over time. For example, office space built in the 1960’s is now undesirable due to its lack of air conditioning and poor layout for high technology. If you find a property with the right specification, you will be able to sell or rent the property far more easily.

Active management

Once you have purchased investment property, you need to do more than simply sit back and wait for the money to come in. Take an active role in management of your investment property, and you will get higher returns from your investment. For example, if you carry out refurbishments, or renegotiate lease terms, you can generate a greater return from your investment.

Stepping into the investment property arena can be challenging, but if you follow the property basics you will go into the market better prepared, and will therefore have a greater chance of success.