Making money from property can be lucrative and fun at the same time. But getting it right the first time around is always challenging, if not impossible.
Fortunately, that’s where this post can help. It looks at some of the things you need to know about making money from property and how you can leverage these the next time you get into a negotiation. Ultimately, these strategies will help you make higher returns and do better overall.
So, what do you need to know? Let’s take a look.
Understand The Basics Of Property Investment
The first place to start is with some property investment basics. Learning these can put you on a fast-track to success and help you thrive long-term.
Start by learning the jargon. For example, buy-to-let means that you buy a property with the intention to rent it out long-term. Meanwhile, flipping means you purchase a property and then sell it for a higher price later (usually after improving the décor and swapping out the old furnace for a new one).
You should also know the basics of how people become successful property investors. For example, understanding the value of location or market trends is helpful. You also want to know the property’s condition and potential.
Start Your Investing Journey
After that, you’ll want to start your property investment journey. How you do this depends in large part on your objectives, but there are some rules you’ll want to follow.
Always create a budget and work out what you can afford. Many investors run head-long into investment activities without considering things like purchase costs and maintenance. Eventually, they get into trouble because their cash flow can’t cover their expenses, leading to losses.
Securing financing can also be another issue. Investors don’t always take the necessary steps to save for the deposits needed for investor properties (since the requirements are often higher than for conventional homeownership).
Doing proper market research is also a critical part of the process. Being able to find properties in up-and-coming areas that will see higher demand in the future is an essential skill.
Then, lastly, there’s the actual type of units you want to invest in. Large properties are a good option in some areas, but most investors make the majority of their money from smaller units, clustered together in specific areas.
Making Money In Property
Making money in property is possible as long as you understand how it works. It turns out that there are actually numerous ways real estate can make you weather (not just one or two).
For example, the most obvious way to make money is through regular rental income. Leasing units to renters for one to two years at a time provides long-term cash flow and ensures rental covers mortgage payments and other expenses.
Yes, you will face various management costs, including needing to vet tenants. But most owners make quite a bit of money from these uses of property.
Short-term rentals are another option on platforms like Airbnb. These can yield higher returns, but are highly location-dependent, so you don’t always get what you expect (unless you’re near a tourist hotspot). If you’re unsure, it is worth trialling it for a few months and seeing what happens. If you beat the average Airbnb void rate, you’re probably doing okay.
Flipping is obviously another way to make money. However, it is more challenging. Often, you need to renovate properties and research various market trends to understand what’s going to work. If you have the right knowledge, you can do well, but there’s always a risk with this approach and a lot of people are doing it, meaning that opportunities to make real money can be few and far between.
Lastly, you can make money with properties via capital appreciation. This occurs when the value of the home increases in line with house price rises in the area.
Usually, there’s a tradeoff between the percentage return from renting out and capital appreciation. The faster the former goes, the slower the latter will be, and vice versa. This phenomenon exists because the market is always trying to equalize rates of return. If properties have higher rents, more landlords demand them, pushing up the price and, therefore, lowering the yields. It’s just basic economics.
If you find a property with high yields and appreciation rates, that’s the holy grail. Buy these immediately if you ever find them!
Risks Of Property Investing
Of course, as with all investments, property investing comes with some serious risks. As such, it is always a good idea to work with a real estate lawyer whenever you complete a translation. Don’t try to do everything yourself, regardless of how experienced you think you might be.
The primary risks are legal and regulatory. These occur when government officials or other parties undermine your claim on a property or prevent you from using it in the way you want.
You can usually get around most of these risks by working with a trained legal professional, like a lawyer or solicitor. However, it is also a good idea to just read up on the law yourself so you know where you stand and how the process works as a whole.
Unexpected repairs and tenancy risks are also high. You could have renters who destroy your property and refuse to pay the rent, leaving you with all sorts of headaches at the end of the month.
Interest rate changes can also be highly problematic. These fluctuations often affect mortgage availability, meaning that your repayments could go up, making your business less viable.
Tax Issues
Finally, you will face several tax issues if you set up a property investment empire, regardless of your strategy. That’s because virtually every country around the world taxes these investments.
Rental income counts as regular income, meaning you’ll need to add it to your conventional taxable total. That’s annoying because it lowers your real returns.
You may also have to pay capital gains tax when you sell. Again, that can cut into your profits and make you poorer unless you speak to an accountant about mitigation strategies.
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