Real estate was once thought to be one of the best investments that you could make. Everyone wanted to own property. Those that already owned their own home were keen to buy a second property to rent out or to invest in property development. It was a great way to make a passive income, with very little work on your part.
Nowadays, things can be a little different. Buying with the intention of letting out is more difficult. Tax rates, stamp duty, and other associated costs can be much higher, there are more pressures on landlords to take care of their property and tenants, and insurance premiums can be much higher. If there’s a problem, landlords can find themselves facing legal action, and for many, the income just doesn’t seem worth either the expenditure or the efforts involved.
Buying property is difficult, not to mention expensive. Preparing it for let is time-consuming and costly. Finding tenants can be tough, and even then, without the right tenants, you can find yourself facing a high turnover, having to tackle countless repairs and improvements and spending a fortune cleaning the property when they leave. On top of all this, there is the cost and responsibility of taking care of the property, modernizing and making changes when they are needed. The costs of real estate don’t stop when you’ve made your purchase. They are on-going. As are your responsibilities as a landlord. It’s not an easy job, and it’s often not as profitable as you might expect it to be.
But, despite all of this, real estate investment can still be a great way to make money. It can over time help you to become wealthy. It can help you to retire early, and if you find the right tenants and take care of your property, it can be a fantastic way to make a passive income, without having to put massive amounts of effort in all of the time.
Pay with Cash
Before the changes to regulations and taxation, it was even worth buying a second home with a mortgage. The money that you’d make in rent would still make a property a worthwhile investment if you owed money on it yourself. In most cases, this is no longer worthwhile.
It can still be tempting of course but bear in mind; most rental properties have a high tenant turnover. If you were faced with a long period where your property was empty and so not earning, could you comfortably cover the mortgage? If you start to struggle, this property that was meant to make you money can suddenly start to damage your personal finances and even have an adverse effect on your credit score. If you can pay with cash, the risks are significantly less, and your purchase will be much more worthwhile.
When it comes to investing in real estate, it’s worth exploring options in different locations. You might be able to charge a high rent in more popular and affluent areas, but the cost of the property itself is sure to be higher, and your tenants might have much higher expectations when it comes to what they want from their homes. Buy in a cheaper area, and you might spend less in the first place, but will you attract the right kind of tenant and will the rent that you can charge make it all worth it? It can be a tough call.
One option, is investing in property in another country. Buying a home abroad gives you several options. You could rent it out, sell it on when it’s ready and able to turn a profit, or even rent it out as a short-term holiday let, depending on the location. You might need to spend a little hiring a local agent or team, but the benefits can outweigh the costs. Read more about why Asia is the hottest real estate market if buying abroad is something that you are interested in.
Buy the Right Property
Wherever you chose to make your investment, it’s crucial that you don’t just rush out and buy the first home that takes your fancy. You need to do your research. Spend time in the areas that you are interested in. Watch people, find out who lives there, what they do and where they spend their time. Are these the types of people that you’d want living in your property? Would they be good tenants? Can they afford the rent that you need to charge?
Then, look at the house closely. When viewing with an agent, it’s easy to miss crucial things that could cost you a lot of money moving forward. Just as you’d research a property before buying it for yourself to live in, you need to do your homework before purchasing an investment property. Have surveys and searches done, look at the history of the house, and the previous owners and tenants. Finding out as much as you can about the house and it’s structure, the fixtures and fittings, the utilities and even the smaller details, can end up saving you a lot of money in the future.
Buy the wrong property, and you’ll struggle to find tenants. You might face expensive repair bills before you can even let anyone live in it, your insurance premiums could be huge, and the costs could be never-ending. If you want your investment to be worthwhile, doing your homework is crucial.
Find the Right Tenants
The right property with the wrong tenants can be costly too. It’s worth taking your time, even if it means that your property is empty for a little longer. Find tenants that you trust to take care of your property and to treat it like their own. Find people that are happy to do smaller jobs themselves, and that won’t be calling on you every time a light bulb needs changing. If you can find the right people, you might have the same tenants for years, saving yourself time and money as every year goes by.
Don’t Get Carried Away
Starting small is ok. Try renting out a room, or a floor in your own home, or rent out an inherited property to help you to get to grips with real estate. You can always expand when you are ready.