How to make money from property investment: 4 top tips
Wondering how to make money from property investment? Have you been inspired by a TV property show and want to give it a go? As with any serious business, property investment is not something to dive into unprepared. Here are four things you need to do before taking the plunge.
1. Do your research
No successful property investor will rely on luck or gut feeling alone to make their purchasing decisions. Yes, people have been fortunate to buy a house just before the local market goes crazy, but that’s the exception, not the rule.
When times are tough economically, it is especially important to invest with your head rather than your heart, since opportunities for growth are less abundant.
So, what does researching how to make money from property investment entail? It starts with gathering reliable evidence from reputable sources about national, regional and local property markets. This should include evidence about:
- Affordability ratios (the ratio of wages to house prices)
- Interest rates
- Mortgage availability
- House supply
- Rental property demand
- Demand for buying properties
All of this evidence will be invaluable when it comes to both choosing where to invest and working out how much you can expect to make from your investment.
That leads us nicely on to…
2. Get your head around ROCI
No article on how to make money from property investment would be complete without highlighting the importance of ROCI calculations.
You’ve probably come across ROI (return on investment) before.
Well, ROCI is more specifically the return on CASH invested. For those with a phobia of maths, the good news is that ROCI is not a complicated calculation, and we show you exactly how to calculate returns in our companion blog post.
However, it is important to make sure that you don’t leave anything out of your sums, because every cost counts. ROCI is a really important concept to understand because it separates the money you have actually put into the deal (e.g., a deposit) and the money you have temporary borrowed to make the deal happen (e.g. a mortgage).
This directly impacts on your cash flow which, in turn, affects how quickly you can build your portfolio.
3. Decide on your goals and strategies
When thinking about how to make money from property investment, it is useful to divide investment strategies into two camps:
The one that suits most new investors, is the ‘investment for income’ camp. Here is where you focus on building a portfolio of rental properties to give you a comfortable monthly income from tenants.
The other camp, which tends to suit established investors (and the producers of property TV shows), is the ‘investment for capital growth’ camp. This is where investors make money by selling property on for more than they bought it for.
Both branches of investing incorporate a range of different possible strategies. For example, you could specialise in letting to young professionals in suburbia or build a portfolio of HMOs in areas with a lot of demand for shared accommodation. If you choose a capital growth strategy, you could make small individual gains by refurbishing a large number of properties or focus on one or two major refurbishments to achieve big profits.
The strategy you choose will depend on your personal circumstances, access to capital, appetite for risk and personal preference.
4. Learn how to source properties as an investor
Another important tip for success when investing in property, whatever strategy you decide upon, is to approach buying properties as an investor.
You may have to unlearn some of the property hunting strategies you have used in the past because property investing requires a completely different mindset.
Property investment is all about meeting housing demand. The most amazing house you’ve ever seen would flop if there were no one willing or able to live there. On the other hand, a small flat in a run-down area could turn into a lucrative investment if the area is about to receive an infrastructure boost and there is a thriving local labour market.
How Fielding Financial can prepare you for property success
The number one piece of advice we can give to people interested in learning how to make money from property investment is to come along to one of our FREE no-obligation property seminars.
We run these regularly, across the whole of the UK, so there will be one in your area soon. Our seasoned property professionals can answer any questions you may have and help you avoid those common rookie investor mistakes.
Visit our seminar page and book your place today.