When my husband and I decided to invest our savings in property, all we saw were potential dollar signs in our future. We envisioned our money multiplying quickly. While it is possible, there are a few things we learned the hard way about property investments. It’s not just about saving up capital then investing, it takes calculation and thoroughness before, during, and after the process.
Now, I tell my friends that property investment needs a multi-level strategy to not just ensure that the basic value of the investment increases, but also the overall costs involved should not exceed your profit. Also, making the right choice between an unoccupied property and a rental is crucial.
Here are some handy tips that we can share from our long years of experience in property investment.
Your Financial Prudence & Future Target: Quite early on in our investment journey my husband and I understood the major mistake we made.
- We invested in a property without clearing our debt.
- We invested without properly calculating the kind of returns we must expect
As a result, our first investment was a huge loss, but the only reason we could recoup losses eventually is because we undertook a course correction. Don’t carry debt in your portfolio. For average investors like us, it always makes sense first to clear all loans and then make the fresh investment. When we bought our holiday home, we had to wait for 3 years to clear the existing mortgage. But as a result of that, the relative return was 5% higher. We could avoid all the extra expenses in terms of servicing two loans simultaneously this way.
Know The Builder: We learned another lesson in our initial property investment. My husband just invested in a land decided to build a home for family. We did not undertake any due diligence in terms of verifying the builder’s credentials. As a result, we got stuck with a problematic builder. It is extremely important to know your builder and at the beginning of your project. Often your return prospect is solely dependent on the quality of builder that you work with. When you are associated with a quality builder, you will be able to recover the value of the property quite simply and for a sustained period.
A Business like Approach: As you get into a potential property investment, you need to make sure that you treat it like your own business. You cannot just invest your money in a property and forget it. When we started, we made sure that we gave it as much importance as we would have to any business that we might have. In fact, be prepared to spend more time and efforts than you initially expect. Property Guru, Stephanie Brenan, says just like any business, it always helps to start small. Don’t aim to buy a multi-million dollar house right at the beginning. It is only through continuous attention, you will be able to give appropriate direction to your business. Brenan who has $2 million plus portfolio started with her birthday deposits.
Ways to Expand Capital: We started our property investment with the sole aim to grow capital significantly. Focus on growing your capital in the fastest and the least hassle free manner. It would mean you need to invest in a way that the pace of your return is the fastest and also would involve the least amount of additional cost. Take a look at the neighborhoods, property value, and required investment (also your efforts like we talked about before). Therefore, the choice of property and the market will play an important role in deciding your gains. For example, if you bought a property near a school anticipating demand for families with school kids, you need to ensure the school has a strong reputation. Supposing the school does not have a great reputation, your property value won’t scale up that much.
Interest Rates: If you are buying a property on a loan, this is a very important consideration. Once I was almost ready to invest in a property to take advantage of the low interest rates at the moment but only when my husband sat down with me and calculated the future rate implication, I understood the huge mistake I was about to commit. Please ensure that you calculate the future rate implications before committing cash. Only a property where your mortgage payment remains less than your profit margin goes on to become a profitable investment strategy. The entire Sub-Prime crisis in US and the eventual economic crisis was an outcome was the basic rate-expense mismatch in the housing sector.
That apart, you also need to pay attention to the kind of accessories that you use in your property. The type of fittings that has been used in the property you buy can go a long way in deciding the future worth. You can always refer to appropriate sites for getting the right type of home appliances and not be fooled by false claims of excellence.
So when you go ahead and invest in property, you need to be very careful. Just like my husband suggests, pay attention to the three main Ps of property investment,
This is exactly what makes for identifying a profitable property investment with strong return potential.
Elizabeth is on the content team for Dynasty Partners, which builds high quality, architecturally rich homes with innovated designs. She enjoys decorating homes, hiking, hanging out with her family, and volunteering at the animal shelter in Des Moines, Iowa.