Things to think about before you begin…
What is your goal?
Capital growth with the view of selling after a few years or a second constant income
How much time do you have to contribute to managing your properties?
You may be looking for a high yield with minimal input from a management point of view. This is known as a hands-off investment. It is fully managed and generates a high yield. An example of these investment properties would be student accommodation. The type of investors that are drawn to hands-off investments are people that are time poor or have reached a certain stage where they do not want to have the hassle of managing a property, they just want to receive a steady income from their property investment enabling them to plan their future.
How much risk are you comfortable with?
Do you want to take on more debt and the risk of interest rate increases? This risk level is dependant on the type of property investment strategy you choose. So before choosing your strategy you must plan for the risks including of interest rate rises and factor in void periods ie. Periods of time when your property may be vacant.
This strategy is often chosen by those seeking to increase their portfolio as quickly as possible. This is best suited to individuals with a long term approach who are willing to take on more risk and debt in order to grow their portfolio.
Taking on more debt is often called gearing. Essentially you use more of the banks money than your own. This enables a faster portfolio growth. For example, the typical buy-to-let mortgage is seventy-five per cent loan to value (75% LTV) which means that with a twenty-five per cent deposit the purchaser can make a buy-to-let investment.
Built in equity
This strategy involves sourcing property that that can be purchased off-plan and ready-built properties in high growth areas in which there is a supply shortfall relative to demand that are often below market value. If an investor purchases the property at today’s prices there is a good chance that the price will be higher upon completion.
High yield passive income investing
The savings rates in banks are currently at a low. Those with bigger savings who may be nearing retirement age are being hit the hardest because their savings are quite simply not making enough to sustain their retirement lifestyle. Hands-off investments like student property are great for the high yield property investment strategy because they provide high yield and a good level of capital protection.