Investing In Properties The Smart Way
It seems like everyone talks about getting into property but most are not able to pursue that goal. It usually comes down to, they either have no money to invest in property or they don't have the time or experience. People also think you need thousands of pounds before you can even start thinking about investing, which is not true. Just to get started, let's see what is meant by property investment.
To invest in property means to purchase either residential or commercial property or land for the purposes of making financial gain either through letting/leasing or selling the property/land. (Opulent Property Investors)
Property can be purchased either through a regular mortgage or a cash payment if you have enough savings. Apart from this one can go down the bridge route or the private investor route. Just to make you aware, bridging finance companies can be very expensive and are only used for the short term. Hence the name Bridge, it gives you the ability to purchase the property, refurbish it and then get a mortgage on the newly developed property, meaning you get back more than what you put in. Before you go down the path of bridging or even using a private investor make sure you know what you are doing and that you have gone through all the numbers, meaning you have worked out how much it will cost you to buy, refurbish the property and then how much it will be worth once completed. If you are able to pay everyone back comfortably with some change left over for yourself, then you should go ahead with it, if not then move on to the next one.
It’s good to take risks, but the risk must be a calculated risk, you don’t want to gamble your money away. So make sure it's money that you have and not money that if you lose it will make you homeless. The amount of money you will need depends on the size of the project, so for example you could start with around £50,000 to refurbish, then refinance and then rent out for a monthly income. If you don't have the experience or expertise to refurbish a property you could loan that money to a property investor for an agreed return over a period of time. So you get back more than what you put in for no work done on your side, Or you could hire the services of a qualified builder/project manager who can oversee the whole project and you pay them a set amount to complete the work and you keep the property at the end without having to split half of the profit.
Many landlords have been adversely affected by the changes in taxation. Meaning if you fall in the higher tax bracket you end up paying more tax on your rental income. This is if you have the property in your personal name. If however, you set up a limited company then you can reduce the amount of tax you pay by paying corporation tax instead, which has a lower tax rate.
Once you have your property you can either arrange with a property manager to manage your property so you don’t have and pay them a percentage of your income. Now, depending on where your property is located whether it's close to you or in another city far from you, you could manage the property yourself. This could save you a lot of money in the long run. Agents not only charge a percentage on management but they also charge for anything extra they do for the property and this can add up at the end of the month. For each new property you pass on to them, the expense just keeps adding up.
If the property has been refurbished to a good standard you could manage it yourself. Advertising for new tenants and vetting them, which sounds daunting but can easily be done. Once they are in then there shouldn’t really be any problems with the house as it has been newly refurbished. So you may not have to deal with many issues. If you find that you are purchasing more properties and it is now becoming difficult for you, you can hire an employee to work part time with you. The employee’s wage does not increase with each new property that you buy so it works out more cost efficient for you.
The best way to keep your properties occupied is to look after your good tenants. The happier they are the longer they will stay and the less voids you will have. If the tenants are keeping your house clean and tidy and are generally good neighbours then you need to do your part and repair any faults quickly or change what needs to be changed quickly as well. It's rare for a good landlord to get a good tenant.
If you don't like the idea of keeping someone in your house over a long period of time then you could look into AirBnB on short term lets. Here you can get more for your property and not have the hassle of someone not leaving when you want them to leave. There is more management required for this type of let but the returns are a lot more. There are many pros and cons to this type of business, you need to look at everything before you decide to go down this route. One of which is getting the right type of mortgage and insurance’s. You will also need cleaners and someone to wash your linen on a regular basis, someone to hand over the keys to let the guest in etc are some of the things you need to consider.
Obtaining a property with a close friend or family member and renting out rooms whilst you still live in the house is another way to get started. The tenants can help you pay off the mortgage quicker. You could use the equity in the property to get another property and get new tenants to pay for that mortgage.
Before you take on any new venture it is always a good idea to get professional advice from experts who will be able to guide you through the legal and tax structures and how to set up your business for the best returns that are tax efficient.