Real Estate investment has become popular in recent years as a way to make returns on your capital. Property prices in the last ten years have consistently risen, and whilst there have been periods of prices falling, overall real estate values have remained strong and delivered a good return on investment.
However, to ensure your investment succeeds, there are several things you should consider before dipping your toe in the water.
Location, location, location
When it comes to ensuring that you have a property that rents consistently to good quality tenants, has a good rental value and also consistently increases in value, location really is key. Here you need to do some research – look at areas that have good development plans, big headquarter buildings, hospitals or universities, or that offer great schools. All of these areas will have high rental demand.
The overall return on investment
There are two things you need to consider here – what will the rental yield be – the difference between the costs you incur on renting out your property (mortgage, ground rent, insurance, management fees etc) and the income you gain from the rent itself. The percentage figure for good rental yields tends to vary by market, but for example, in the UK you should be aiming for a property that can deliver a 5-8% yield. This delivers an ongoing income, on top of any capital price increase in the property itself.
Cash Flow – how are you going to finance your property?
Many schemes offer reservation fees at around £5,000 for new build apartments, but you also need to consider the deposit you have available and how much of a mortgage you will need to take on a property. If you are looking to purchase a £250,000 property, you should aim for around 70% loan to value – meaning that you will need to finance a 30% deposit. Then you need to look at the typical fees you may need to pay – in the UK, you will need to cover Stamp Land Tax, plus solicitors, mortgage brokers and other fees. In total, it’s recommended you have around 40% of the total cost of the property available as equity to complete your investment.
Hands off management
If you are looking for a totally hands-off investment, it’s recommended that you work with a management company. Some companies can offer services to source your tenants, manage all the legal paperwork, and ongoing maintenance of the properties – meaning you can just collect the income at the end of each month.
It may sound like a lot to think about, but here at United Advisers Group we work with partners to help make investing in property as easy as straightforward as possible. Get in touch to find out how we can help make your property investment dreams a reality.
This article first appeared in Dockwalk Magazine in July 2022.