15 Property Investment Tips for Investors: From Beginner to Advanced
by Property Investments UKThe Property Investments UK editorial team have been researching and writing about the UK's property market for more than a decade.
If you want to succeed in property investment there are lots of tips and advice out there. But here are what we think are the top 15 property investment tips to help you on your property investment journey.
- Tip 1: Think Long Term
- Tip 2: Have a Clear Investment Strategy
- Tip 3: Consider a Contrarian Investment Strategy
- Tip 4: Have a Budget and Use It
- Tip 5: Practice the Mantra of Location, Location, Location
- Tip 6: Make Use of the Data. Understand Prices and Rents
- Tip 7: Buy at the Right Price – Buy at Below Market Value
- Tip 8: Do your Due Diligence
- Tip 9: Have an Exit Strategy …. Before You Even Invest in Property
- Tip 10: Get Expert Advice on Finance
- Tip 11: Get Expert Advice on Tax
- Tip 12: Always Aim to Add Value
- Tip 13: Diversify Your Portfolio
- Tip 14: Regularly Reassess your Property Investment Strategy
- Tip 15: Beware of the Risks of Property Investment
Tip 1: Think Long Term
Like most investments, property investment usually works best when used as a long-term investment. Here’s the main reason why: Property prices may rise and fall in the short term. But history shows that property prices always rise in the long term. So, by following a long-term property investment strategy you will almost certainly make money.
Ideally, your property investment strategy should have a 10-20 year time frame.
Tip 2: Have a Clear Investment Strategy
Think about your reasons for investing in property. Think about what you want to achieve and what are the best investments to get you there:
- Are you interested in property to make money now, or build for the future? Are you planning a property pension?
- Do you want/need income or growth (or both)?
- Would ‘hands-on’ or ‘hands-off’ property projects suit you better?
- What sort of property projects are you interested in? For example, buy to let, buy to sell, flipping, development etc.? Residential property investment or commercial property investment?
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Tip 3: Consider a Contrarian Investment Strategy
Iconic stock market investor Warren Buffett is reported as saying that investors should be fearful when others are greedy, and greedy when others are fearful.
A contrarian property investment strategy is to buy property when everyone else is selling and sell when everyone else is buying. It operates on the theory that when everyone is buying prices rise above their underlying value. When everyone is selling prices drop below their underlying value and so this is where money can be made.
This theory has some validity in the property market which is often considered to be cyclical.
Tip 4: Have a Budget and Use It
Budgeting is an important technique to use in property investment. Budgeting can help to keep your project on track and help ensure that you return a profit.
- Work out how much cash you have to invest – and how much you can sensibly borrow.
- Estimate purchase costs accurately, including property purchase costs, fees and taxes.
- Estimate project costs accurately, including materials and labour costs, fees and taxes.
- Estimate sales costs accurately, including fees and taxes.
- Overestimate your expenses and underestimate your income.
- Have a contingency for unexpected costs. A minimum contingency amount is circa 10%.
Tip 5: Practice the Mantra of Location, Location, Location
Location, location, location is an often-repeated mantra in property investment and it is very true. Here’s why: You can improve a property relatively easily and cheaply. But you cannot improve its location at all.
The best locations for property investment are usually locations with good local amenities, good transport links and good proximity to workplaces.
The saying ‘buy the worst property in the best street’ illustrates the importance of location well.
Tip 6: Make Use of the Data. Understand Prices and Rents
Understanding the numbers is key to success in property investment. Getting a good handle on what current market prices and rents are, and how they are moving, can help you spot good investment opportunities first.
- Use market data. There are lots of property market data sources out there that collate and analyse prices and rents. Property.xyz is our recommended resource.
- Take expert advice. Estate and letting agents can advise on asking and selling prices and rents and market trends in their area.
- Do your own research. Use portals, local ads. and your own local knowledge to understand local conditions.
Tip 7: Buy at the Right Price – Buy at Below Market Value
When investing in property it’s crucial to buy at the right price. Here’s why: You can control the price you buy property at, and if the price is not right you can opt not to buy. But you cannot control the price you sell property at – that is always controlled by the market.
The right price to buy property at is below market value or BMV price wherever possible. That is, below the price a property would sell for on the open market. By buying below market value you maximise the chances of making a profit when you resell considerably.
Ways to buy below market value include: Buying at auction or buying off-market.
Tip 8: Do your Due Diligence
Due diligence is vital before investing money in property. Due diligence means doing your own investigations, research and checks into potential property investment. Doing due diligence involves verifying any information, facts and figures you have been given about a project to make sure they are accurate. Due diligence involves researching both the area and the property itself.
When doing due diligence on a property purchase take expert legal advice.
Tip 9: Have an Exit Strategy …. Before You Even Invest in Property
Before you put money into any property decide how you will get it out in due course. For example, will you sell the property? Will you refinance it? Will you transfer or give it to someone else?
Under when and in what circumstances will your exit strategy come into play?
- Will you exit after a certain number of years?
- Will you exit when you retire (and when will that be)?
- Will you sell when your property reaches a certain value, or when your portfolio is worth a certain amount?
- In the event that property prices fall, will you exit at a stop-loss figure?
- If you buy to let, will you sell if the rent/yield/profits drop to a certain point – should that ever happen?
Tip 10: Get Expert Advice on Finance
If you plan to borrow money to invest in property always get the best advice you can before doing so. Take advice from an independent financial adviser or finance broker.
Financial advisers can tell you what is the most suitable type of finance for your property investment project, whether it is a mortgage, bank loan, development loan or bridging finance. They can advise on alternative finance via peer-to-peer finance or venture capital.
Financial advisers can help you find the most cost-effective type of finance for property investment, with the lowest interest rates and charges.
Tip 11: Get Expert Advice on Tax
You can maximise your profits from property investment by investing in the most tax-efficient way. Tax-efficient property investment means you can maximise the tax allowances you take advantage of, and minimise your tax liability.
To invest in property tax efficiently take advice from the best accountant or tax adviser you can find. For example, they can advise you on:
- Is it better to invest through a limited company or in your own name?
- How your pension can be used in property investment, in some circumstances.
- How to minimise Capital Gains Tax (CGT).
- How to minimise Inheritance Tax (IHT).
Tip 12: Always Aim to Add Value
Looking to add value with every project means you can generate an extra capital gain in the short term as well as just the long term.
Some ways of adding value to a property project include:
- Buying a property which requires renovation.
- Making more efficient use of a property, eg. turning a three-bed house into a four-bed.
- Adding an extension or extensions.
- Converting a lower-value property into a higher-value property, eg. commercial into residential.
Tip 13: Diversify Your Portfolio
The main advantage of diversifying your property investment portfolio is that if one type of property investment performs poorly (or fails) then there is a good chance that others in your portfolio will succeed. So, overall, you will still make a profit. Diversification might also be called hedging your bets.
Ways of diversifying in property include choosing a basket of projects which are in many ways the complete opposite of each other. For example:
- Buy a property that generates a strong income stream but has less potential for growth, alongside a property that offers a more modest income stream but a high potential for growth.
- Work in buy to lets, buy to sells, flips and developments.
- Invest in different areas, eg. established areas and up-and-coming areas.
- Buy cheap property and more expensive property.
- Buy different types of property, eg. both residential and commercial, both houses and flats.
Tip 14: Regularly Reassess your Property Investment Strategy
Like other markets, the property market is regularly changing. As old opportunities fade new, exciting ones emerge. What worked yesterday may not work tomorrow and vice versa.
Monitor your portfolio and your projects regularly – at least annually and ideally more often. Decide whether to buy, sell or stick, ie. buy a new property, sell some properties or hold them for now.
Tip 15: Beware of the Risks of Property Investment
Like any kind of investment, property investment involves some risks. The overriding risks in property investment are that you will not make any money, and also that you will lose money.
Specific risks in property investment are:
- Possible legal problems with your property.
- Possible planning problems with your property.
- Possible licensing problems with your rental property.
- With a buy-to-let, you may not be able to let your property, may not achieve your desired rent, or may have tenant problems.
- You may not be able to sell your property when you want to (a property is an illiquid asset) or may not achieve your anticipated selling price.
By being aware of the risks of property investment you can minimise risk and thereby aim to maximise your returns.