June 18th, 2015. Ben Lloyd
The Ultimate Guide to Real Estate Investment
Sherwoodrealestate under CC 2.0
When it comes to investing in real estate there’s always something to learn whether it’s your first time in real estate investment or if it’s something you regularly do. There are questions that need to be asked every time you look to invest money into real estate and areas that need to be examined.
To give you the best chance at making a sound investment, here is Pure Commercial Finance’s Ultimate Guide:
Why Invest in Real Estate?
This is a question that many first time investors are looking to have answered. With so many places to invest your capital, why choose real estate? In recent years this has become one of the most popular long term investments – beating gold and stocks – as there is a very attractive yield to be gained in a relatively short time span.
It is much more tangible than stocks, which many investors like, and real estate can provide great long and short term profits. Unlike other investments, there are things that you can physically do to ensure you get the best returns from your capital.
What’s the Best Real Estate to Invest in?
The amount of work you want to put in will have a strong correlation to the type of property you should by. If you don’t mind getting your hands dirty then a redevelopment or new development can provide great returns on your investment. Alternatively, buying land is a good long term investment if you are planning on selling the plot to developers at a later date.
Buying to let is also a very popular real estate investment as it brings in a monthly profit with very little work on your behalf. If you have several rental properties then you can benefit from using a management company to take care of the estate on your behalf.
Where to Invest?
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Again, this is a personal decision but it should also be based on areas where potential for investment is strongest. Areas like London or places abroad like Hong Kong can rapidly increase your investment, although they are more expensive to initially purchase and there can be difficulties along the way.
Financing is often the biggest issue you will face when investing abroad, as many UK lenders will only provide funds for ventures in the UK. To make sure that you get the best funding when looking abroad, it is a good idea to use a commercial finance broker to compare the best deals available and find the one that best matches your needs.
Finding the best place in the UK to invest is very complex due to finding prime areas of potential growth. Many locations have already seen lots of development driving up your initial costs, while less developed areas may not have the infrastructure required to be a sound investment.
Do the Research
Once you’ve figured out the location where you plan to invest it is essential that you thoroughly research the type of real estate that does well here. There’s no point building a block of flats in an area that has no call for them as they will be extremely difficult to sell or rent upon completion. Before you make a decision make sure that you’ve thoroughly researched everything you need to know about the area, a brief checklist would include:
- What is the rental or resale value of the property?
- Are there jobs, industries or strong transport links nearby?
- Will you be developing or refurbishing the building – which produces the biggest yield?
- Are there any planning restrictions for the area?
- What are the local vacancy rates on?
- How much are the council rates and other fees?
- Is it more cost effective to hire a project manager or handle the project yourself?
- How far are the nearest amenities?
Finding the answer to all these issues before making a decision can help to give you a much better understanding of the project in question. This should help to show whether you’re making a sound investment or if you’d be throwing money into a bottomless pit.
If you wait until you have enough capital to purchase your investment fully then you are likely to miss out on the opportunity. Here you need to find a financing option that allows you to make the most from the investment with increases in interest rates taken into account. Ideally you want to put forward a healthy deposit of 60% or more, but it is possible to get funding with as little as 20%.
Commercial finance brokers can help you save a small fortune here, ensuring that you get a deal that suits your needs. Make sure that you’re using an independent broker in order to get a comparison of the whole market rather than a select group of lenders.
Buy at the Best Price
The first rule of property investment is that you make money on the purchase price, not the sale price. The cheaper you buy the property for the more capital gains you will be able to get from it. Try to get real estate that is well under market valuation and your investment should grow considerably.
That said, don’t buy property that you simply cannot afford. You should always have money in reserve to cover the costs for 3-6 months if needs be. While you want to be looking at property in areas that are in demand, it pays off to look at which areas will be popular 1 to 5 years in order to really maximise your profit.
Plan Your Exit
You need to be able to cut and run with your money when investing in real estate, so it is important that you have planned your exit strategy. It could be that you aim to rent out the property after it’s been redeveloped or you’ll sell the land to a developer for a profit. Whatever your plan, make sure that it is feasible and can be completed in a timely fashion.
Not having an exit plan can leave you hanging with a property that quickly eats into your profits. Create a plan A for cashing out but make sure there is a backup plan just in case the project doesn’t go exactly to plan.
It’s a Balancing Act
Property investment is all about making money, so you need to be thinking about building upon the bottom line. This is the cut-off point between making a profit and losing money on your investment and it needs to be rigorously maintained. If you start teetering on the edge of this line then you will need to drastically reassess the direction the project is going.
If you are rapidly losing money then it may be a strong decision to try and implement your exit strategy early. However, if the real estate market shifts the other way and your investment continues to increase in value then it can pay off to hold onto the property for a longer period of time.
No matter what else you take away from this article, the best thing to do is ensure that you’re making money off your investment. Make sure you’re constantly balancing the books and planning ahead to avoid any unnecessary expenses or unwanted surprises.
Use Real Estate to Fund Real Estate
One of the first things you’ll notice about real estate is that it isn’t a cheap to get into but, like the property market, once you’re on the ladder it’s easy to take another step up the rung. When you start off investing normally it’s to make a small profit, but this small profit can then be reinvested into a larger project for even greater margins.
While it may be tempting to use the profits from your investment to take a nice long holiday, by putting it back into real estate you’re likely to see much greater profit in the long run. This will allow you to get involved in multiple projects or put your capital and attention into one large project. The majority of real estate investors use existing projects to fund new ones, and it is something that you should be looking at doing as well.
Understand it’s a Risk
Like all investment, real estate investment is a risk. While you do stand a good chance of making money, there is also the potential that the project may go belly up and you’re left out of pocket. Always plan your finances with this in mind – going all in on a project is not advised, although the final decision is left up to you.
Need help finding the perfect finance solution? Talk to Pure Commercial Finance today, as independent brokers we are able to look at every lender in order to find you the best finance package for your needs. Give us a call today on 02920 766 565 or email us on firstname.lastname@example.org for more information on the service we provide.
Article By Ben Lloyd
June 18th, 2015
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben