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What To Consider When Buying An Investment Property

Buying an investment property is a worthwhile endeavour that will reap many benefits. However, before jumping into the process headfirst it’s wise to take a moment to think things through. Location, price, ROI and the type of property are all factors to keep in mind when embarking on your investment journey. Here at Lev Properties, we’ve put together a useful guide to help you navigate the property world. So, read on to discover the key considerations to think about when buying an investment property.



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Why invest?

When it comes to property investment, the benefits you’ll reap are limitless. Here’s just a few reasons why you should consider buying an investment property:


Passive income

The way in which property can increase in value and generate income from rental costs or capital appreciation is an incredibly productive way of earning and increasing long-term wealth. The best part of this is that it often doesn’t even require a great deal of effort and you won’t have to do too much.


Long-term security

The more income that you generate by investing in bricks and mortar, the higher the funds available to secure yourself a strong retirement fund. According to a recent study by The Telegraph, the way property prices currently are, a person investing in a property today worth an average of £235,000 will be worth roughly £1m by 2038. This means that property investment has the potential to make you financially secure in the long run.

A low risk option

Rental properties are currently in high demand in the UK. Compared to other less tangible investment strategies like stocks and shares, buying property is considered relatively low risk compared to other types of investment. This is in part because property investments which provide strong cash flow have the ability to help get investors through periods of instability or uncertainty that other types of investments can provide at times, for example during a financial crisis or a recession. After all, there will always be people looking for somewhere to live.


Key considerations when investing in property

Property investment can certainly be an effective way to generate passive income and provide you with long-term security. However, there are certain things that you should think about before jumping straight into the process. Here’s some key factors to consider when choosing a property to invest in:


Location

The importance of choosing the right ‘location, location, location’ cannot be overstated. This crucial factor will largely determine the profitability of your investment, designating it as something you should have a serious think about. When selecting a location for your property, you will need to consider:


● Proximity to amenities, green space and scenic views

● The status of the neighbourhood


If you’re looking to invest in a commercial property, you will need to research closeness to markets, warehouses, transport hubs, motorways and the concept of tax-exempt areas.


You should remember that areas can evolve over the investment period. While you might initially enjoy a peaceful plot of land at the back of a residential property as your investment journey begins, keep in mind that this could one day become a noisy construction site - which will diminish the value of your property. This is why it is crucial to thoroughly investigate the ownership and intended usage of the immediate areas where you plan to invest.


Valuation

Property valuation will determine the economic value of your property investment. This value is generated through the use of specialists techniques, including:


● Sales comparison approach: recent comparable sales of properties with similar characteristics - most common and suitable for both new and old properties

● Cost approach: the cost of the land and construction, minus depreciation - suitable for new construction

● Income approach: based on expected cash inflows - suitable for rentals


Investment purpose

To make sure you get the right results, it’s important to determine the purpose for your property investment. Categories to plan around include:


● Buy and self-use - with this option you can save on rent and have the benefit of self-utilisation, while also getting value appreciation.

● Buy and lease - this popular choice offers regular income and long-term value appreciation. It’s also considered low risk due to the lower financial output needed and the typically lower costs associated with purchasing a buy-to-let property. However, you will need to be prepared to handle possible disputes and legal issues, manage tenants, repair work, etc.

● Buy and sell (short-term) - this is generally for quick, small to medium profit. The typical property is under construction and sold at a profit on completion. Buying a new build off plan, which means before it’s been completed by the builder, could make you money if its value has gone up from the price agreed at the outset by the time it’s finished. However, despite the potentially huge discount on the initial property purchase price, this form of investing can be often considered as risky. This is because you have no solid way of knowing how the finished property will look and if the developer is inexperienced, then this could cause further problems.

● Buy and sell (long-term) - this is generally focused on large intrinsic value appreciation over a long period. This offers alternatives to compliment long-term goals, such as retirement.


ROI

If you want to make a success out of property investment, you will need to pay particular attention to the ROI of your proposed property. The ROI for any property is equal to its profitability - a measurement of how much money, or profit, you have earned on an investment as a percentage of its total cost. Everything from the location and size of the property to the financing options taken out to complete the purchase are all factors to consider when calculating the ROI for your property.


In general, ROIs between 5 – 7% are strong. This changes when considering areas where the average property price is particularly high, such as London and Edinburgh, with a more accurate goal in London being between 2 – 3%.


New construction vs existing property

You may need to weigh up the benefits of investing in a new construction project vs putting your money into an existing property. With new construction, you can often expect attractive pricing, customisation options and modern amenities. However, it’s worth noting that it also involves potential risks - delays, increased cost and the unknowns of a newly-developed neighbourhood. In many ways, existing properties are a more convenient choice - faster access, established improvements and usually lower costs. When deciding between a new or existing property, you should:


● Review past projects and research the construction company's reputation for new investments.

● Look into property deeds, recent surveys and appraisal reports for existing properties.

● Think about monthly maintenance costs, outstanding dues and taxes - all of which could impact your cash flow.

● Quality-check items such as furniture if these are to be included in the sale.


Your credit score

Your credit score will affect your ability to qualify for a mortgage. This will impact the terms your lender offers. A higher credit score will often result in you getting better terms, which will contribute to substantial savings over time.


Common reasons that lead to a poor credit score include:


● Late credit card or personal loan repayments

● Credit defaults

● Poorly managed store cards and secured loans

● Bankruptcy and IVAs (Individual Voluntary Arrangements)

● Large outstanding debts

● Having no credit history


If you’d like to improve your credit score, there are a number of things you can do. These include:


● Keep personal details up to date

● Cancel credit facilities which aren’t in use

● Address credit history errors (agencies do not always get it right)

● Investigate unrecognised financial items

● Request a ‘notice of correction’ where appropriate

● If you have multiple credit cards and loans that you repay on time

● Repay accounts in arrears

● Stay up to date with payments

● Ensure all registered addresses are the same

● Consolidate credit cards where suitable


Premium property development at Lev Properties

Investing in property for the first time can feel a little overwhelming, and it can often be tough to know how to get started. If you’re feeling lost, work with Lev Properties. As a leading property investment agency in Liverpool, we are committed to making the process of buying an investment property as simple, stress-free and rewarding as possible. We understand that as a prospective investor, you’re just as driven to succeed as we are. This is why we ensure that everything is taken care of on your behalf, from securing properties at auction to property renovation and securing a tenant, all the while maintaining clear and open lines of communication throughout every stage of the process. We’ll be on hand to help you through every step of the process - so what are you waiting for? Get in touch with us today to start your investment journey.

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