Investment in real estate 2022
If investing in property is something you want to pursue on its own or as part of a wider investment portfolio, you need to do your research, assess your finances and take the right steps. Follow our property investment guide to increase your chances of success.
Property investment can be done in different ways. You can decide to buy a home or commercial property outright, or you can invest in a property investment fund. It’s worth taking the time to research your options and decide which type of property investment is right for your situation and needs.
The types of property investments you can go for include:
Buy new construction to sell
Investing in foreign property
Real estate investment trusts and other property investment funds
You can read more about these below.
Investment in real estate 2022
Whichever way you go, remember that investing in property can be rewarding but also risky, so it’s best not to invest more than you can afford to lose if the worst happens. Before investing, you should make sure that you have paid off any non-mortgage debts and that you have an emergency fund to cover at least three months of living expenses in case the unexpected happens, such as losing your job.
If you fancy yourself as a property developer, you need to know the pitfalls and rewards of buying a property to renovate or renovate and sell. Read our guide to Advantages and disadvantages of property development.
Buy new construction to sell
Buying a new build plan, ie before it has been completed by the builder, can save you money if the price on completion is higher than the originally agreed price. You can then sell them for a profit. Additionally, you may be able to add value to the property by decorating it.
But this can be dangerous. You haven’t seen the finished property so it may not be what you expected. The developer may go into a frenzy.
You may face difficulties in selling the property and until you do, you will be stuck with paying the mortgage. The built environment may not be the neighborhood you expect.
Investing in foreign property
If UK property investment doesn’t appeal to you, buying abroad may be worth considering. You may also be able to earn money by letting holidaymakers while you have a place to rent out for your vacation. And if the property goes up in value, you can make a profit when you sell it.
Read our guide before you decide to go ahead Advantages and disadvantages of investing in foreign property.
Real estate investment trust
Real estate investment trusts (REITs) are companies that invest in real estate. Most of their income comes from rental income.
In them you buy shares that can be traded on the stock market and your money is pooled with other investors to invest in property. Just like any other type of stock, you make money if you sell them (even if they go down) and the stock price increases.
REITs must pay out 90% of their earnings to shareholders and receive tax benefits in return – they don’t have to pay corporate tax or capital gains tax – which can mean big payouts.
Other advantages are that it is easier to invest than buying physical assets and easier to exit as you can easily sell your shares. You can also invest in smaller amounts instead of spending tens of thousands to buy a property.
Other indirect methods of investing in property include:
Property class trust
Open-ended Investment Companies (OEICs)
Property investment trust
Mortgage and loan notes
Shares in listed property companies
Property ISAs (these allow you to invest in property without paying tax on your returns)
Ways to invest in property at a glance
Here are all the major options you can choose from in one convenient table.
Factor in the costs you expect to pay
If you decide to buy a property, this comes with a number of costs:
Legal counsel fees
Property agency fees
Land registration fees
Stamp duty (Land and Building Transaction Tax in Scotland; Land Transaction Tax in Wales) – If you are in the UK, you will pay an extra 3% or 4% when you buy an ‘extra’ property.
If you’re thinking of investing in a property, make sure you look closely at the costs involved to determine if it’s worth it.
Evaluate whether or not you should go ahead with investing in property
Property investment is a big decision. It can easily cost you money because it can give you a refund. By doing this, you can ensure that you don’t overextend yourself and that you won’t be in trouble if something goes wrong with the property or finances.
You should also consider other types of investments, such as stocks and mutual funds. These low initial costs allow you to indirectly invest in real estate.
To increase your chances of making money, especially if you are considering buying a rental property, you need to be in the property for a long time. Don’t expect to get your money out of this type of investment in a hurry.
Consider the risks involved in investing in real estate
The housing market is constantly changing. Property prices rise and fall, and rental demand can fluctuate.
And also market trends, there can be problems with certain houses – especially if you invest directly in a property. The foreclosure crisis means that many homes have fallen in value as the market has risen over the past two years.
All this means that if you are investing in property, you should see it as a long-term investment for at least 10 years. That way, you should be able to ride out any storm, and maybe sell it again when the market is good.
If you overextend yourself and the market dips, you may struggle financially.
The best way to protect yourself is to spread risk by investing in a variety of investments, including property. Before making any decisions, do your research and consider getting independent financial advice.
Find out if you can invest in property
If you want to invest in property, you need extra cash that you can afford to lose.
Calculate your income and expenses
To make sure you can afford the investment costs in property, you need to calculate your income and expenses in an average month to determine how much you need to save.
Read our guide for tips on how to do this How to write a budget.
Calculate how much capital is available to you
You also need to look at what other money you have available to invest in addition to working with your disposable income. This includes any savings accounts, ISAs, premium bonds and investments such as shares, bonds and unit trusts.
See exactly how much you owe and find out what interest or repayments you’re paying. Also check if there are any restrictions on when you can withdraw funds.
Before you decide to use any of this money to invest in real estate, carefully consider whether you can grow your money by doing so rather than keeping the money where it is. It’s best to have a variety of investments so you don’t put all your eggs in one basket.
If you want to take out a mortgage to invest in property, remember that you will need to use some of your cash for a deposit. While you can get a rent-to-own loan for up to 85% of the property’s value, you’ll get the cheapest deals by putting down 40% or more.
Here How to save a mortgage deposit If you don’t have enough.
Compare mortgage deals
Once you’ve decided to buy a property to pay as an investment and know how much you can afford to pay as a deposit (although make sure you have enough money set aside for other relevant expenses), you can get started. Research what lenders might be willing to lend you and how much your monthly mortgage payment will be.
If you buy properties at different prices, you can find out what the LTV might be. This is a percentage of the value of the property that you are borrowing, so if you buy a £200,000 property with a £150,000 loan and a £50,000 deposit, the LTV will be 75%.
Then use mortgage comparison sites to see what deals are available to you and how much you’ll be paying in interest each month – buy-to-let loans are often interest-only. Be sure to factor in setup fees and interest rates when comparing deals, looking at the total cost over the term of the deal.
How much rental income do you need?
To get a buy-to-let loan, lenders want to know that the property’s rental income will cover 125% to 145% of the loan interest payments. So, if your mortgage payments are £1,000 a month, you’ll need to earn £1,250-£1,450 a month in rent, depending on the lender.
To see if you can actually get that kind of income from the property you’re considering buying, check with local rental agents to find out the rates.
It is difficult to predict whether the property will generate profits in the long run. Because the amount you can sell in the future depends on many factors. These include the health of the property market and how desirable the area will be. That is why investing in real estate can be risky.
However, if the property can make you a profit after paying off your mortgage every month, you can at least do it. Don’t forget to take the cost…