While there are a lot of similarities between investing in the stock market and investing in the property market, there are some differences too, so to help you decide if property investment is for you, we’ve created a list of the four basics of successful property investment and, where relevant, highlighted differences with traditional investment.
Focus is crucial
Focus is certainly important in stock-market investment but the nature of the stock market means that it is often easier to dispose of investments quickly if you realise they don’t fit in with your personal goals. The costs of buying and selling on the stock market also tend to be lower than in the property market.
This means that successful property investment depends on being very clear about what you want (e.g. capital growth versus rental yield) and your investment horizon. It is strongly recommended to put all this down in writing as a business plan to which you can refer whenever you wish. Your business plan should include a statement of the circumstances in which you might want, or need, to dispose of your investments, along with at least one feasible exit strategy.
Stay on top of your finances
First of all, it is imperative to avoid letting your emotions lead you into paying over the odds for an investment property. Be particularly careful if you are buying at auction. Of course, you will only be able to make an accurate assessment of how much a property is worth if you are able to make an accurate assessment of how much profit you could make from it, which means understanding not just the general dynamics of the property market but the specifics of the areas you wish to invest in. You will also need to remember that, unlike equities, property requires both insurance and maintenance, so you will need to budget for this.
Appreciate the importance of paperwork
Paperwork is unlikely to top the list of the world’s most thrilling topics of conversation, but it matters a lot, particularly if you are investing in partnership with someone else. In that situation, it is imperative that you both think clearly about your goals, so you are sure you can work together amicably and what will happen if one of your wants or needs to exit the investment or even if you die.
Even if you are investing purely by yourself, you will need to ensure that you do so in compliance with the law, for example, if you are renting houses for multiple occupation then you will need to follow the appropriate local authority rules. Last, but by no means least, you will now need to support claims for tax deductible expenses, so remember to keep all associated paperwork.
Review your business annually and update your business plan as required
As the old joke goes, change is the only constant in life. As your life changes, your investment aims are probably going to change as well, so your property investment business plan needs to be updated accordingly.
For more information on property investment or to browse a range of investment property for sale, please contact Hopwood House.