7 Tips for first time property investors

Overall, there’s rarely a bad time to invest in property, especially not in the UK. With that said, even in the UK, it’s important to go about property investment in the right way. Here are 7 tips to help first-time property investors get off to a good start. 

Build on a solid foundation 

In general, starting any sort of investment program should come after paying off high-interest debt such as credit cards. You should also have adequate savings and insurance to protect you from life’s slings and arrows. Ideally, you should be able to maintain an income from at least one source other than property. 

Start with an exit strategy 

This may seem counterintuitive, but it aligns with the principle of thinking about how you’re going to get out of a situation before you get into it. Even if you plan to be in property investing for the indefinite future, having an exit strategy helps you to move on smoothly if your plans change. It also gives you a defined endpoint. This can help with making decisions. 

Hire an accountant and a lettings agent/property manager 

It’s worthwhile educating yourself on both the financial and legal aspects of property investment. Even so, it’s strongly advisable to hire both an accountant and a lettings agent (residential property) or property manager (commercial property).  

In the early stages of your property-investment journey, their knowledge and experience will be far greater than yours. As you move on, this gap may diminish. There are, however, still many benefits to having professional specialists on your side.  

Possibly the most important is that they will stay on top of changes to the law. They will therefore ensure that you stay on the right side of it at all times. This can become increasingly challenging as your portfolio expands and your responsibilities increase. 

Having professionals on your side can be literally invaluable if you decide to enter more complex property-investment niches such as houses in multiple occupation (HMOs). These can be both profitable and a great way of spreading risk. They do, however, require very special handling. 

Educate yourself on the property market 

To begin with, educate yourself on the basics of both residential and commercial lettings. From this, you’ll be able to decide which one appeals to you more. This will be your starting point for developing your own property-investment strategy. 

From there, decide if you want to focus on locations or certain target markets. If you want to focus on locations, then research what your potential target markets are. If you want to focus on target markets, then research where they are likely to want property. 

Once you have this baseline established, you can go into more in-depth research on both your target area(s) and your target market(s). You want to know which specific parts of your target area(s) offer the best value. You also want to know what specific property features will appeal to your target market(s). 

Make sure you understand the risks of property investment 

With any form of investment, your capital is at risk. This is also true of the property market. Realistically, however, the nature of the risk is a bit different from the risks you face in the stock market.  

In the stock market, it’s possible for companies to go bankrupt taking your investment capital with them. That does not happen in the property market. Even if a property were somehow to be destroyed (e.g., in a fire), the loss would probably be covered by insurance. 

This means that, in practical terms, the main risk in property investment is having cash-flow issues. If these become too severe, you may end up having to sell your investment property unexpectedly. You may even have it repossessed. Either way, you may end up making an overall loss. With repossession, your credit record will also be severely damaged. 

Fortunately, there are steps you can take to mitigate this risk. Firstly, do thorough research so your base estimates on accurate figures. Secondly, allow yourself a decent margin of error. Thirdly, expect the unexpected. Have savings and insurance to protect you from their consequences. 

In addition to all the above, be aware of the three most common reasons for cash-flow issues and keep them in mind at all times. Firstly, there are difficulties filling a property (also known as void periods). Secondly, there are unexpected costs that you cannot legally pass on to your tenants. Thirdly, there are issues with late-/non-payment of rent. 

Learn how to value investment property

In very simple terms, when you buy residential property for yourself, you’re buying a lifestyle. When you buy investment property, you’re buying an income. You, therefore, need to learn how to value a property in terms of the income it can generate for you. This will determine the highest price you can afford to pay for it if you go ahead with the purchase. 

Keep in mind that the value of a property is determined by its net profit rather than its gross income. You, therefore, need to assess how much it will cost you to set up and maintain. As a tip, residential landlords tend to favour modern properties. These generally have the highest levels of energy efficiency and lowest maintenance costs. 

New property investors might want to take a close look at both off-plan property and tenanted property. Off-plan property is property that is sold before it is completed. Buyers get a discount on the intended sales price. They may also be able to get input into the construction process (e.g., by choosing finishes). 

Tenanted property can also be a great choice for new investors. This is because, effectively, another investor has done all the hard work for you. Essentially, you are just taking over an established business. 

Keep full records of everything you do

At a minimum, keep records of all expenses. Support them with receipts whenever possible. Ideally, document your general research process and your process for valuing a property. Update these documents if these processes change. Then, you can simply refer to them any time you need to decide regarding your property portfolio.