Property investments are one of the most common forms of investments, alongside bonds, shares and cash. Anyone looking to make a profitable investment is likely to have considered property in one form or another. There are various different ways of investing in property, with everything from property developments to buy-to lets available.
If you are considering a property investment, there are a few basics you should understand, and a few decisions you will need to make before you can get started. This guide covers everything you need to know about how to invest in property, the types of property investments and the risks you should be aware of.
Why choose property investments?
If you want to make a decent return on your investment, then property is a good option to consider. When it comes to investing in property, there are two main ways that you could potentially make a return. The first is through rent, where you choose to let out a property and receive an income from your tenants.
The second is by selling a property for a profit; this could be through property development by buying a property, doing it up, and then selling it for a higher price. It is also possible to invest in property and get these benefits without buying a property yourself, as you can choose to invest in funds that invest in properties.
Investing in property in any form is a big financial decision and is likely to be one of the biggest investments you make in your life. You should thoroughly research and understand all your options before making any decisions.
How to invest in property?
There are various options when it comes to investing in property, and the main thing to consider is whether you want to buy a property yourself or invest in property indirectly. The main ways to invest in property are:
- Buy-to-let: One of the most common property investments is buy-to-let investments. This is when you will buy a residential property and then let it out to tenants to live in, and you will receive income through their rent. This is a good option if you want an investment that offers a regular income; however you should bear in mind that you will also have all the responsibilities of being a landlord.
- Property development: You can also make a good return on investing in property developments. You can buy a run-down property and refurbish it to sell on for a higher price or invest in new build properties. There are various risks involved with investing in property developments, and there is no guarantee that you will be able to sell the home on for more than you have spent on it.
- Buying and selling new builds: Many property investors will buy new build properties off plan, and then sell them on once they are completed. You can add value to these properties by furnishing or decorating them before you sell them on. However, they are also risky as the property may not end up looking as you expected if the developer changes their plans.
- Real-Estate Investment Trusts (REITs): These types of trusts are popular if you are looking to invest in property, without paying out to buy an entire property yourself. They are investment funds that invest in solely in properties, and a number of investors’ money is pooled together to buy property that is then owned by the fund. Investors will then be paid returns depending on how well these investments are performing.
Investing in property comes with a range of additional costs that you will need to consider when working out if it is right for you. These include solicitor fees, estate agent fees, Land Registry fees, mortgage fees, Stamp Duty, surveys and insurance.
What are the risks of investing in property?
Property investments are no guarantee, and the demand and prices for properties fluctuate all the time. They are always long-term investments, whether you are investing directly or indirectly, and over time properties could either increase in value or lose their value.
If you are willing to wait, then you can often ride out losses on property investments in the hope that the market will improve again and then can earn profits or sell the property on when times have improved. There is never any guarantee that you will be able to sell a property for more than you bought it for and make a return, however, there are some things you can do to improve your investment.
You can consider refurbishing a property to increase its value, and you should also think carefully about the location before committing to buying a property, as this has a significant impact on the value.
To avoid the risks of property investments, it can be worth having a diverse portfolio with several different types of investments. This way, if one performs poorly, then you will have other investments to cover those shortfalls. If you are considering buy-to-let then read our guide for first time landlords and our guide to successful buy-to-let investing.