- Understand the market
The first priority for any investor is to do the research. If you are new to buy-to-let, ensure you understand how the market operates. If you are an existing investor, look to develop your knowledge further or research new markets and consider diversifying your portfolio.
Property investment offers the opportunity to benefit from ongoing rental income and capital gains as housing prices rise. When inflation is low it can be particularly attractive, as returns can be well above the bank savings rate and mortgage repayments will be low.
However, there may be periods when inflation rises or property values fall and, as your money is tied up in bricks and mortar, it takes longer to release your cash. Therefore, property should always be seen as a longer-term investment.
That said, real estate is viewed by experts as one of the key pillars of any investment strategy and can provide excellent returns. Market knowledge is the key to minimising risk and making profitable investments.
- Take stock of your finances
Assess your financial situation to get a clear picture of your income, expenditure and savings. Are you planning to buy in cash? Or do you need a mortgage—in which case you will need to ensure you can keep up the repayments if interest rates rise or if there are voids between tenants. Either way, you must also be able to cover the cost of repairs or unexpected expenses. After assessing your finances, you can set a realistic budget.
- Consider the options
Essentially there are three choices for buy-to-let landlords. You can manage the property yourself, which requires a significant amount of time and knowledge to deal with tenants and manage the repairs and maintenance, or use a lettings agent to do it on your behalf. The third option is to use a specialist international buy-to-let agency which will look after the whole process from acquisition to ongoing management. This is ideal for busy professionals, or people working or buying overseas.
- Identify locations
Location is one of the key factors in property investment, so look for areas with a strong rental market—typically towns and cities with a strong economy and a healthy employment market, ideally with plenty of young professionals in need of rental accommodation. If you plan to manage the property yourself, you will be limited to locations closer to home.
Using a managing agent will allow you to cast your net further, while a specialist agency will give you access to the global property market, allowing you to compare opportunities in different countries and take advantage of rising markets or currency fluctuations.
- Shop around for a mortgage
If you need finance, get it pre-approved. Generally, to secure the best rates, you will have to put down a larger deposit and pay a bigger arrangement fee. Lenders like to be assured that the level of rent will adequately cover the mortgage payments and that borrowers have other sources of income. While some offer fixed interest rate deals, consider what you might pay after this if interest rates rose, and any other terms and conditions. Those buying in a different country will need to consider mortgages in the local market—we can recommend professionals in the area should you need advice on this.
- Clarify the tax situation
Check how you will be taxed on your new property income and what expenses you will be allowed to claim against it—and stamp duty or similar local taxes you will have to pay. Tax rules vary from one country to another and are subject to change. However understanding the tax implications is critical to calculate your returns and choose a property that will give you the best outcome. At Benoit Properties, we have forged relationships with tax advisors and accountants in each of our markets and can recommend trusted professionals should you wish to learn more during the decision-making process.
- Learn to do the sums
The yield is the total annual rental income as a percentage of the cost of the property—so for example, a $200,000 apartment with an annual rent of $20,000 equates to a yield of 10%. However, to work out the true returns on a property, you will also need to allow for any void periods, repairs and management fees, then take account of mortgage costs and finally, work out how much tax you will pay.
- Compare different properties
By now, you will be in a position to start narrowing down the options and identifying specific properties. You have probably already started to look around and seen opportunities of interest—but having a firm grasp of the figures will make you better placed to compare different properties and make the final decision. One of our consultants would be more than happy to discuss this with you over the phone should you wish to learn more.
- Start a filing system
Keeping records and monitoring performance is an important part of property investment so start to put structures in place. Create space in your filing cabinet and a folder on your computer where you can store useful information and documents, record income and outgoings and keep cashflow predictions.
- Keep up to date
As you build your portfolio, ensure you also keep abreast of developments in the market. Consider ways to diversify by investing in other locations—the internet makes it easy to keep up to date with trends in property markets worldwide. Read articles, talk to other investors and always keep an ear to the ground for any new opportunities coming along by subscribing to our weekly email newsletter.
Contact us today to receive more information on investment opportunities.
