Not all property purchases are equal. While one property investment could be the foundation to building wealth, another could be a monetary black hole. What is the difference between the two?
To ensure that you are making the most out of your property purchase, it is vital to be well-informed, savvy and make the right buying decisions from the outset. The choices you make during the property buying process will have a significant impact on the potential return on your investment in the long term.
Simply purchasing a home at what is considered a fair market value will not guarantee that you will see good returns in the future. Here are a few golden principles that you can apply to any property acquisition:
The first step is to decide whether you are purchasing the property as a home to live in or for investment purposes. This decision will have a bearing on how you will approach the purchase. If you buy the property with the intention of living in it as your primary residence, the decision-making process will be far more emotionally guided. In this instance you will consider aspects of the property and the surrounding area that appeals to you personally. However, if the property is for investment purposes, it is more important to research what appeals to possible tenants in the area and who the tenants might be.
Although it is possible to find a lot of information about an area online, nothing can replace checking out the location in person. Take the time to drive around the area and walk the streets. Consider what the traffic is like and who your potential neighbours could be, as well as the local facilities and amenities. Local estate agents will also be able to provide you with information regarding the local property market and recent stats and figures of sales in the area.
Irrespective of the property market phase or external factors such as Brexit, sound property buying principles remain true. These include the property’s location, the value per square foot and the potential rental yield. These factors will always be the key criteria to base your decision on.
Never underestimate the importance of location. Two homes can have the same features but have very different values depending on their location. For example, the average house price can vary by as much as £500,000 from one tube station to another in London, so it might be worth sacrificing a few extra minutes on your commute. It is even possible for homes to have different values based on which side of the street they are on. From an investment perspective, purchasing the worst home in a sought-after area is better than buying the best home in an area that is not as appealing.
If you are buying with the intention of letting the property out, you will need to consider that different aspects will be attractive to different people, so discovering your niche market is essential. As an investment buyer, you should also look at how many other rental properties are available in the area before you buy. The rental sector is driven by demand, and an investment could fall flat if there is an oversupply of properties available for rent in the area.
If investing, it is important to think about what you would like to achieve with your property portfolio and what needs to be done to get there. If you are buying a home to live in, it is essential to think about where you would like to settle for the next five to ten years.
Having a clear plan in place will help you remain focused and will give you something to work towards. Never limit your thinking to what you can afford right now, but rather what will be possible for you in the future.
Access to finance is a key element to any property transaction. While around 30% of buyers can buy a home in cash, most buyers will require a mortgage to purchase a home. To increase your chances of getting a mortgage approval, ensure you have a favourable debt-to-income ratio and keep a clean credit record.
It is also vital to have a deposit of between 10% and 20% of the purchase price of the property, as well as additional funds for solicitor’s fees, stamp duty and various other costs associated with purchasing a home.
Although a return on investment is often at the core of every property buying decision, there are other aspects to be considered. The basic principle of purchasing a property is that if you wouldn’t want to live in it, it’s not likely many others would either. The property should appeal to you and you should want to own it.
If you are looking to buy a home you’ll want to own contact your local Guild agent.
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