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Real Estate Investing : Investment Property

Last Updated: May 14th, 2012 - 22:24:01

Property Investment Advice And Techniques

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There are several ways to approach property investment and the starting point should always be a decision on whether you are a cautious, adventurous or speculative investor. According to this decision you would adopt one of the following strategies, or a mix of them in order to create a balanced portfolio.

Cautious :

	Buy resale, completed new-build or near completed new-build properties from reputable builders in sound areas with a genuine discount and/ or substantially greater rental income than current mortgage rates cost - a 150%+ gross interest cover is preferable, not just 130% requested by banks. PIC has offered properties with 200%+ interest cover in the past.
	Ideally seek properties with both a discount and high return but at least a high rental income to provide safety in case of interest rises or future rental rate reductions. Genuine discounts are often accompanied by high interest cover in any case and will always be provable against other local properties.
	Obtain fixed rate longer term mortgages to minimise short term risk.
	Buy in carefully researched areas with high rental demand using specialists such as The Property Investors Club.
	Take a long term view and do not sell into short term downturns.
	Adopt repayment mortgages as soon as you can or even pay cash or at least high deposits for the properties if you can afford to.
	BENEFITS - insulation from interest rate rises, strong cashflow from the properties, capital paid off in years to come so all rent can be taken as income, good chance of leveraged capital gain. RISKS - significant interest rate rises, significant rental value reductions, oversupply of rental property in your area, significant price drops at a time you must sell. WHO FOR ? - older or risk averse investors, those with limited investment capital and little or no risk capital.

Moderate Risk :

	Buy off-plan or completed properties with a genuine discount and ideally greater rental income than current mortgage rates cost - a 150%+ gross interest cover is preferable, not just 130% requested by banks. Ensure that low interest cover now is likely to become good interest cover in the near future if an area is being redeveloped.
	Genuine discounts are often accompanied by high interest cover in any case but in areas undergoing significant redevelopment you could get great capital gains in the coming years as development is undergoing but have poor rental indications and interest cover in the short term.
	Obtain fixed rate longer term mortgages to minimise short term risk if you are worried about affordability of properties in the event of interest rate rises, otherwise obtain the best rates with minimum redemptions if you are positive about the future of interest rates or can easily cover any rises in rates.
	Buy in carefully researched areas with high rental demand currently or forecast using specialists such as The Property Investors Club.
	Take a long term view and do not sell into short term downturns.
	Consider buying some properties off-plan in order to resell prior to or shortly after completion but only where the discounts are significant against current provable market value. This will increase your investment equity if this speculative component is successful and this profit can be used to fund future deposits (after tax!).
	BENEFITS - modest insulation from interest rate rises, probable/ modest positive net cashflow's from the property that will get greater over the years, good chance of strong , leveraged capital gain. RISKS - moderate interest rate rises, moderate rental value reductions, oversupply of rental property in your area, moderate price drops at a time you must sell. WHO FOR ? - younger and less risk averse investors, those with reasonable investment capital and some risk capital.

Speculative :

	Buy off-plan properties with a genuine and provable discount to current or forecast future market value with around 5% exchange deposit and in an area that will probably have either strong rental demand, strong buy to live demand or both in the future.
	Genuine discounts are often accompanied by high interest cover in any case but in areas undergoing significant redevelopment you could get great capital gains in the coming years as development is undergoing but have poor rental indications and interest cover in the short term.
	Buy in carefully researched areas using specialists such as The Property Investors Club.
	Ensure the contract is assignable and sell before completion to another buyer or shortly after completion.
	BENEFITS - no need to apply for a mortgage, no management of the property, no stamp duty on sales before completion (at present), good chance of strong , leveraged capital gains possible of 10%-100%'s in a short time. RISKS - strong interest rate rises, mis-quoted property discounts leading to leveraged capital loss rather than gain, strong price drops or forecast price rises that do not occur at the time you sell, builders pulling out of development sales pre-exchange due to strong demand and market price rises. WHO FOR ? - very young and and/or risk friendly investors, those with reasonable access to capital and willing to put it at risk in return for large possible returns.

Finally some guidance and advice from experienced professionals :

	Always seek guidance from other investors and experienced professionals such as those who attend our seminars and training courses.
	Always check discounts against actual market value of comparable properties - it has been known for these to be inflated by vendors !
	Buy in carefully researched areas using specialists such as The Property Investors Club.
	Be careful of 'Free' seminars teaching you how to buy property with no money down - especially when they are just selling you a very expensive follow-on seminar or very expensive membership of a club.
	Be careful of seminars where all the speakers are employees (sales staff) of the company giving the seminar or are 'freelance' experts working solely for the company - seek seminars and courses with independant and reasonably independant speakers such as those offered by The Property Investors Club.
	Be careful of expensive membership of a club - have they got enough property to sell ? - if so they shouldn't need to make their money on memberships.
	Beware of clubs offering a constant stream of 15%+ discounted properties - do your own research on the discounts, there are very few large discounts to current genuine market value like this in the current rising market.
	If you don't have any money you are taking a massive risk borrowing it for deposits - 'No Money Down' sells seminars, it doesn't buy you property.
	Always check rental indications against actual market value rents of comparable properties - it has been known for these to be inflated by vendors !
	Always leave some capital spare for deposit shortfalls and rent shortfalls.
	Don't fall for the discounts shown on a price list from a developer or agent that was only reprinted at new prices a few minutes before ! It is not uncommon for there to be a buy-to-live price list and an 'investors' price list !
	Be careful of off-plan purchases from developers who use certain types of contracts - they can pull out later after having used your deposit to obtain lower cost finance and then resell to new buyers - this can happen more commonly before exchange.
	Be careful of Gifted Deposits and cash backs - many banks don't accept them as deposits and if the value doesn't stack up at the point of completion you could have a large shortfall on your mortgage deposit required - these cash backs/ discounts are sometime backed up by 'adventurous' valuations at the point of sale that don't stack up later.

Source: thepropertyinvestorsclub.co.uk

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