Guide to investing in property

Investing in property can be a lucrative and rewarding use of your finance, however when deciding on taking the plunge, there are a few key elements that investors should take into consideration, such as whether they are investment-ready and well informed on all the available options.

Purchasing a property is a major commitment that should be carefully evaluated regarding your life plans and financial situation both currently and in the future. As a first-time property investor, it is vital to be informed and ask the right questions, such as what, when, where, why and how to invest in your first property. A well-researched investment has a high chance of success or return on your investment, but it is vital to always put in the groundwork, do the research and seek professional help if needed, you shouldn't place money into any investment if you cannot afford to lose that money.

We have put together some tips for investing in your first property.

What should I invest in?

The types of property investment you could go for include, buy-to-let, property development, buying a new build to sell on, investing in property abroad or real estate investment trusts. If you decide to buy a property this can come with a range of costs, including, solicitor’s fees, estate agency fees, Land Registry fees, surveys, mortgage fees, stamp duty tax where applicable and insurance. Becoming a landlord could incur more potential fees on top of this too, read our Guide to letting a residential property.

When should I invest?

The short answer is as soon as you can afford to. While it is important to watch the market and buy at the right time, it is never too early to get into the property market. Property investors should take the necessary time required to ensure that they make an educated decision, assessing whether they can afford to make the necessary financial commitments. To accurately assess this, it is advisable to use the resources available, for example, banks and mortgage originators will be able to give purchasers estimated repayment figures based on finance requirements. Monthly mortgage repayments should not exceed more than 35% of the buyer’s post-tax income, and most buyers will be required to put down a deposit of between 10% and 30% of the purchase price of the property.

Keep in mind that it is not just the mortgage that will need to be paid. There are some other costs involved in a property transaction that can add up to a substantial amount. These fees could potentially include Stamp Duty, a valuation fee, surveyor’s fee, legal fees, electronic transfer fee, estate agent’s fee, insurance, moving costs and the cost of maintaining the property. It is essential to include these aspects into the calculation when assessing affordability.

Where should I invest?

Location is vital because being in the right area and position will ensure a good resale value and return on your investment. When looking into an area, consider proximity to amenities such as schools and shopping centres. Online property search portals can be used to find statistics on areas and values of property. Estate agents can provide you with a comparative market analysis, which will give you a thorough knowledge of the property sales dynamics of a certain area.

Purchasing in a sought-after area will often mean it will be easier to find a tenant for the property, or to sell the property on when the time comes.

Overseas property can be an attractive option for those looking to make an investment and, potentially, earn higher rental yields than buy-to-let property in their own country. You also get the added benefit of owning a holiday home which you can use when it's not being rented out. However, if you’re considering buying property overseas it’s important to think long-term and do your research. This includes the location and how well other holiday lets in the area perform. There may be cut price bargains to be found in some spots, but over the long term you may find it easier to let a property in a more established market. Exactly where you buy will be a very personal decision, however, if you want to earn a good income from it you will also need to consider its letting potential as well as your own personal preferences.

You should also think about the tax you will need to pay on rental income from an overseas property. As with any investment, financial or otherwise, research is crucial and can be the difference between missing costly caveats and being prepared to overcome them.

Why should I invest?

Property remains a solid asset class in which to invest over the long term. Buying property can be a huge step towards financial security and growth and is a great way to invest in your future. It less volatile than the equity or share markets and, unlike other investment options, property investors have more control over their asset. Property prices tend to increase fairly consistently over time, which makes it a lot easier to gauge the estimated return on investment much more accurately than any other investment class.

Another beauty about property is that it is the only asset class that can be financed and leveraged. In layman’s terms, this means that you can buy property with someone else’s money. If an investor can prove affordability and meet the loan repayment conditions, property is practically the only investment option that banks are willing to finance.

How to start your investment journey

Wherever possible put aside as much money as you can. The larger the deposit, the lower the repayments and the easier it is to buy a property. It is also vital to have as much disposable income as possible, as this will have a bearing on how affordable the purchase will be. . Pay off any existing debt as soon as possible to improve your disposable income ratio and credit rating. Maintaining a clean credit record will be invaluable when being assessed for mortgage approval.

Once you have the required deposit and have decided on the type of property that will suit your life stage, working with a mortgage broker can help make the application process a bit easier.

Remember, while the benefits of property investing can be huge, financial investments of any kind can be risky and should always be carefully considered and discussed with all affected parties as well as a professional advisor before making any decisions.