The Basics of Property Investment
Stepping 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
Although 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.
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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.