6 Business Considerations When Choosing an Investment Property

In our last article we looked at 8 Tenant-Focused Tips When Choosing an Investment Property, now it’s time to look at the all-important business considerations.

You’ve considered your potential target tenants and what to look out for when viewing prospective properties, but before you go any further you need to get the business side of things sorted.

Here we will look at the major considerations you need to go through before you even come close to submitting any offers to give you the best chance of success.

The strategy

There are two main overarching strategies when investing in property – buy and keep (rent it out), or buy to sell (flip). If you’re investing to become a landlord and let the property then there are multiple sub-strategies to consider:

• Traditional buy-to-let, a single dwelling
• HMO (House of multiple occupation)
• Serviced properties, such as an apartment with all bills etc. included
• Commercial property

Do you know what type of investor you want to be? Which types of property or target tenants are you passionate about (read our previous blog)? Do your ideals fit current market conditions and do the numbers work? We will look at these aspects here so read on.

Also consider any previous experience you have and any advice you can get from trusted people you’re close to in the industry.

Know your strategy before you begin.

The market

It’s important you understand the state of play in the property market in general, and perhaps even more vital is understanding the area(s) in which you plan to invest in great detail.

When analysing your local market you need to understand the supply and demand in the area. What sort of housing is the area crying out for and which types of properties aren’t attracting interest?

Speak to local estate agents about the area and research yourself. Speak to local authorities and research any upcoming renovation projects. What’s the future vision for the area, what type of tenants will this attract, and how will it affect house prices in the long term?

The numbers

Whether you love or hate crunching numbers, this is where you’re going to make your money so you need to do this thoroughly. You need to find out the likely rent you’re going to receive, or the sale price if you’re flipping, and the cost of any refurbishments you’ll need to do.

Finding a property that needs work is a good strategy as you can make a lot of money by adding value straight away – but only if you buy at the right price.

You need to work out the maximum you can pay for a property based on the return you want to make. You make your money when you buy not when you sell!

Don’t forget to consider professional fees, such as estate agents and conveyancers. And tax, such as Stamp Duty, Capital Gains, and Income or Corporation Tax.

Speak to your professional advisors so you understand all of these factors from the outset.

If you want to go through more detail on how to make your investments work, speak to us, we’ve helped hundreds of investors achieve their goals in property and set countless people on the right path towards financial freedom through successful property investing.

The financing

Will you be a cash investor or require a mortgage or some form of finance?

If you need a mortgage you will usually have to put down at least a 25% deposit. When you buy through a company this will likely be 40%.

If you’re a cash buyer you have a few of advantages. You can buy faster than competing landlords who need finance. You can buy some types of property that those who need finance can’t access – such as very low cost properties or properties of non-standard construction. And it’ll be easier to buy at auction.

A common strategy is to buy in cash, carry out any refurbishment work to add value, or simply purchase below market value (BMV), then re-mortgage the property and use the money you take out to fund further investments.

If you need finance from the outset check your credit report and optimise it where you can. Then talk to lenders and find out how much you can borrow. Now you will have an idea of how much you can spend on your investment property.

The work required and fees

As we’ve mentioned, don’t forget to consider the work required and the fees you will encounter purchasing the property when running the numbers and working out your finance options.

Refurbishment projects often take longer than you think and cost you more than you budgeted for so always have a contingency budget of at least 10%.

Management

Finally, are you going to manage your investment property yourself or use a property management service like ours?

The time you have, how much you want to be involved, and your level of expertise will all likely play a part in your decision making.

At E&M Property Solutions we offer much more than a standard property management service in Burnley and the North West, we can take care of as much or as little as you want.

We can simply manage your letting or take care of everything from sourcing the property, carrying out refurbishment works, finding you your ideal tenant, taking care of all the legalities, and then managing the tenancy.

We’re also specialists in HMO’s if that’s an area you want to learn more about and invest in.

To find out more about us and our services please contact the team on 01282 711560 or email lettings@eandmps.com.