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Friday, April 26, 2013

How do I know if investing in property is the right move for me?

Investment risk is lowered by investing in real estate over a longer time horizon
Rental income is used to pay mortgage debt
By Richard Carr

Investing in property is one of the most popular wealth-creating techniques available to any sensible modern investor.  However, it’s certainly not for everyone.   If you’re unsure as to whether it is really the right path for you to walk, this short but vital guide should help.

Do you know what you’re hoping to achieve from property investment?  

Before spending money on property you should be completely sure on exactly what you’re hoping to achieve through the investment.  Perhaps you’re looking to have some extra money set aside for when you retire, or simply just want some additional income for a yearly holiday. Whatever your aims are, be clear on them before you commit to an investment plan.

How much can you afford to lose? 

Whilst no-one goes into any investment looking to suffer a loss, the simple fact is that it happens.  Have an amount in mind that you are prepared to go to before you decide to cut those losses, and stick to it.  Don’t make this number bigger than you can afford, and never risk the other assets you do have.   Property can be very rewarding, but unless you’ve got a decent amount of money behind you it might not be worth the gamble as an investment vehicle.

Do you want to be actively involved in your investment? 

Many people prefer to let their investments be taken care of by a professional, as it can be quite time consuming trying to stay on top of it all.  If you don’t have a lot of spare time, bear in mind that hiring a professional will incur the necessary additional costs for their services.

Can you get the funds?

With smaller properties, it’s quite common for the fee to paid up-front, but larger investments such as second homes will normally require additional funding, such as another mortgage from the bank.  Are you able to obtain all of the necessary funding without risking other properties?  If not, then real estate may still be slightly beyond your reach, especially in today’s buyer market.

What gain are you looking for? 

Or in other words, how are you going to make a profit?  Are you looking to purchase a property, and then ‘flip’ it (ie, invest in improving the property and then selling it for a profit) or obtain a steady income by renting it out?  Whichever your choice, you should make it according to the current market.  You’ll find it harder to rent a property if the rates for buying are much cheaper, and vice versa.

Do you have enough finances for the extra costs? 

As with all areas of investment, real estate inevitably leads to additional costs such as renovation, stamp duty and mansion tax (in the UK at least).  Whilst you might think you have enough financial muscle to purchase a second mortgage, always take the time to work out in advance which additional costs you’re likely to incur.  With those additional cost added on, you might find you’re actually a little short, or at least not as comfortable as you thought.

Hopefully, these tips should help.  However, always remember that there are a variety of specialists out there who will be able to look at your case on an individual basis and decide if real estate is the best investment for you.

About the author: Richard Carr started his career as a financial advisor before growing his very own property portfolio. He writes advice articles for the online community on behalf of Aspen Woolf, a company which offers property investment opportunities in the UK and abroad.

* Image license: morgueFile  free photo

1 comment:

  1. I should say that in any business, there are risk we should avoid specially in Real Estate Investments. Know all this things. We should know that things we should and not. By that, we can be able to continue the things we are planning.