The property market is a tried and tested investment route that never seems to decline in popularity. And in a context of rising population levels and historically low supply of housing stock, it;’s now an even more attractive option.
But with traditional property investment hotspots in danger of overheating, what strategies can you come up with to make sure that you’re still in the best position with your portfolio?
Here, we take a look at six lesser-known property investment tricks that will keep you one step ahead of the competition…
Look at up and coming destinations
The first thing to do is look at locations globally that are only just emerging onto other people’s radars. We all know that traditional, larger cities that have been touted as investment locations for decades, but increasing awareness of the gains to be made on this type of investment have driven prices up and value out. So the first strategy is to consider the location carefully.
With budget airlines revolutionising low-cost travel, and new routes opening up regionally all the time, hidden gems are coming to the fore that are now more accessible.
Look outside of capital cities for the best gains – infrastructure developments will tell you where investment is likely to follow.
In the UK, places like Norwich, which has traditionally been underserved by road networks, have pipeline developments that are seeing house prices at the lower end of the market increase by 15 per cent in the last 12 months.
Further afield, Bogota in Columbia has high business action, rapid gentrification and rising tourism that makes it a smart investment in the Latin American market, and Lisbon in Portugal is rapidly on the increase with low prices per square metre making apartment housing a good value investment, especially as some areas of the city have seen 20 per cent appreciation in the last year.
Set the right investment goals
While it can be tempting to get ahead of yourself and start dreaming about a multi-million property portfolio, your goal with property investment should be income and not growth in capital while you’re getting started.
To get a realistic idea of the what the value of a property will be to your income, you need to calculate what is called its ‘yield’ – what the annual rental value is as a percentage of the purchase amount. This is the only way to make sure that your buy-to-let investment delivers for you.
Calculating an annual return can be done by taking your annual rental income figure, minus the mortgaging costs for the year, and then work that out as a percentage of the deposit paid.
You also need to allow for maintenance costs such as property agency fees, repairs and other expenses. It can be tempting to think short-term about this income, but the real returns come with re-investment.
Allow the income to build up, and you can then consider re-investing it as a deposit amount on other properties or for paying off the mortgage – meaning that you then hold the entire capital value of the property.
Negotiate on the price paid out
The absolute key to making any property purchase pay is to really get the bottom line right first. If the amount you pay is over the odds, you’ll never be able to make the investment truly work for you.
This is complicated even further with a global investment where you may be dealing with an unfamiliar language and landscape of regulation.
The best initial move is to conduct a careful search for a local property agent – yes you’ll have a steeper initial outlay, but a bit of local guidance can save costly mistakes further down the line.
Look for specific agents based in locations you’re actively researching – working with real estate professionals such as http://rumahdijual.com/palembang/perumahan can help you get the best out of any negotiations.
Remember to bring all your negotiation skills to the fore to make sure that you don’t overpay – be clear that the property needs to generate a steady cash flow, and part of this is making sure there is demand for rentals in the location. You need to avoid long periods of a property standing empty – and this is where a good local agent can pay dividends.
Consider a fixer upper
Of course, the classic sweet spot in buy to let investing is finding a hidden gem that just needs some remedial work to bring its spec back up to a marketable condition.
The ideal is a property that doesn’t need any serious structural work, but more of a makeover to bring tired fixtures and fittings in line with modern tastes – and properties like these are easier to find overseas, where there has traditionally been less of a mania for home improvement and DIY than domestic markets. It’s easier to go in hard on the negotiations for a run down property that may seem too much of a challenge to an owner-occupier, and that real estate agents and previous owners may have had hanging around for a while.
If the price is low enough, you should be able to cover your refurbishment costs (including some inevitable unforeseen expenses) and still allow a profit.
Adding value quickly in this way creates a greater margin on your investment, putting you in a more secure position. Ideally, the final value of a refurbished property to be the price you paid plus the cost of renovation and 20 per cent profit on top. Local contacts should be able to give you a clearer picture of whether this final figure is realistic in the area and market conditions you’re working with – but if you can’t get the numbers to add up, it might be worth reconsidering the location and property type.
Local contacts should be able to give you a clearer picture of whether this final figure is realistic in the area and market conditions you’re working with – but if you can’t get the numbers to add up, it might be worth reconsidering the location and property type.
Find the right tenants
Another crucial piece of the profit puzzle for buy-to-let investors is an often underrated one – and that is finding the right tenants and maintaining a good relationship with them.
Ensure that you or your agent has a clear idea of the ideal tenant for your property and is prepared to carefully vet all applicants to get the right ‘fit.’
You need to develop a mutual trust – good tenants look after landlords, and the relationship cuts both ways.
You need them to pay rent on time and treat the property well, and your own behaviour towards them can influence this. Tackle minor repairs and maintenance issues promptly – not only will this build trust with tenants, but it also encourages them to let you know about other matters, and in a lot of cases you can tackle minor repairs early that, if left unattended, can build up and lead to major issues.
A danger period for any investment property is when it’s lying empty and not earning income – building better relations with tenants can help to streamline this as they may even recommend your property to others after moving on and may give you early warning of any change in plans.
Again, if you’re buying investment property overseas, you can create contact over Skype and emails or find an efficient property manager in the area.
Invest in comprehensive insurance
Too many first-time investors make the mistake of not treating their enterprise like a business – which it is. You need to ensure that business is ‘earning’ but delivering timely and full rent money to you as the owner.
But what happens if things go wrong?
Make sure you factor in the cost of a comprehensive tenancy insurance policy when working out costs. This is known as a ‘rent guarantee’ insurance and is offered by some larger lettings agencies to clients or can be sourced as through specialist providers – compare providers with this landlord insurance finder tool.
Then, if you do have a situation where a tenant doesn’t make the rent, for whatever reason, you are covered against losses.