The Emblem Collection Group reveals the ‘10 Rules to Successful Property Investment’. If the term ‘Highly effective real estate investor’ is of appeal to you, stay tuned, as the first five Rules below, will provide you with an insight into the characteristics of achieving success in property investment.
1. Make a Plan
Property investing should be approached as a business in order to establish and achieve both short and long-term goals. A business plan allows investors to visualize the big picture, which helps maintain focus on goals, rather than on any minor setbacks. Property investing can be complicated and demanding, and a solid plan keeps investors organized and on track. Remember that ‘if you fail to plan you plan to fail’.
2. Know Your Market
Effective real estate investors should have an in-depth knowledge of their selected market(s). Keeping abreast of current trends, including any changes in consumer spending habits, mortgage rates and the unemployment rate, to name a few, enables real estate investors to acknowledge current conditions, and plan for the future. This enables investors to predict when trends may change, creating potential opportunities for the wise investor.
3. Understand The Risks
Prudent property investors understand the risks in property investing and the market in general – not only in terms of real estate deals, but also the legal implications involved – and adjust their businesses to reduce those risks. Unlike Shares Stock or Futures market investors who are inundated with warnings regarding the inherent risks involved in investing, property investors are more likely to see advertisements claiming just the opposite – that it is easy to make money in real estate and that that there is no better time to invest etc.
4. Consult an expert
The Property investing business is challenging to those attempting to do things on their own. Effective property investors often use the services of property consultants, mentors, lawyers or supportive friends. Rather than risk time and money handling a difficult problem, successful property investors know it is worth the additional cost (in terms of money and ego) to embrace other people’s expertise.
5. Build A Network
A network can provide important support and create opportunities to either new or experienced property investors. This group, comprised of a well-chosen consultant/mentor, business partners, bankers, estate agents, clients, or members of a non-profit organization, allows investors to challenge and support one another. Because much of real estate investing relies on experiential based learning, effective property investors understand the importance of building a network.
6. Choosing the right property at the right price
Investing in real estate is usually all about capital growth, so choosing a property that is more likely to increase in value is the most important decision you will make, therefore buying at the right price is absolutely critical. Remember the old saying that ‘….the profit in property deals is made when purchasing, not when selling….’
Look for opportunities to acquire a property below its real market value by being patient and knowledgeable. The key for you is to do your research, work out what everything is selling for in and around the area and then you’ll discover that soon you will become very good at working out what a property is worth – you will know a bargain when you see it. Never consider purchasing property in an area that you are unfamiliar with.
Different types of property – commercial, offices, shops, hotels, apartments, houses and land etc.– can outperform each other over time. For example, vacant land will provide no rental income but may appreciate more quickly if purchased in an area with limited supply. Some property types offer higher rental yields, but it is important that you do your homework as often these properties provide lower capital growth opportunities.
It is also important that your property suits the demographics of tenants in the area. For example, if it is near a university more bedrooms will be in greater demand than a big garden for children to run around. A family home that is close to schools and parks on a quiet street will be more desirable than a property on a busy road.
7. Cash flow is king
Investing in property is a proven path to long-term wealth, however you should consider it as a medium to longer term type of investment. Therefore you will want to make sure that you can afford to maintain your loan repayments over the long term. You will not want to have to sell your investment property until you can sell it profitably. In case you were to encounter some financial stress, this could force you to offload the property at the wrong time.
Once you own an investment property it can be quite inexpensive to keep it and service the loan, if you earn rent and get a tax deduction on many of the expenses associated with owning the property and remember that over time rents tend to increase as does your own income – so expect things to get easier over time.
8. Understand the market and the dynamics
Consider what other properties are available in the immediate area of interest and speak to as many locals and estate agents as you can – they’ll let you know if one side of a street is considered superior to the other. It is always good to let competing agents know that you are looking at other similar properties to see what they say; it is a good trick to get inside information. Make sure you do the leg work and consult professionals you can trust. Get independent information on average rents, property values, demographics and other relevant reports.
It is also a good idea to find out what changes may be happening in the area that are of interest to you. The local council can often help here. For example, a major construction next to your property could make it harder to find a tenant at the right price or a planned by-pass may mean traffic will be reduced and this may increase the value of your property quicker than expected.
9. Pick the right loan
There are many options when it comes to financing your investment property, so get sound advice for this as it can make a big difference to your financial well-being.
Interest on an investment property loan is generally tax deductible, but some borrowing costs are not immediately deductible and knowing the difference can count. Structuring your loan correctly is critical and this should be done with the help of a trusted financial advisor.
Whether you choose a fixed rate loan or a variable rate loan will depend on your circumstances, but consider both options carefully before you decide. Over time variable rates have proven to be cheaper, but selecting a fixed rate loan at the right time can really pay off. Remember that rates usually rise in line with property prices; so increasing interest rates are not always bad news for property investors, as they have more than likely had a win on the capital gains front.
10. Take a long-term view and manage your risks
Remember that property is a long-term investment and you should not rely on property prices rising straight away. The longer you can afford to commit to a property, the better and as you build up equity then you can consider purchasing a second investment property – try not to get too greedy and find the right balance between financial stability and still being able to enjoy life. Financial security is very important, but life is not just about mathematics.