There are two main investments that can be made in real estate.
1. Buy to sell, Purchasing a property, commercial or domestic then renovating the property and selling it for a higher price.
2. Buy to let, which is owning a property and renting it out to others.
We will be diving deeper in both of these investment opportunities.
Buy-to-sell, Buying and selling properties -
This venture process is like any other buying and selling business, you buy at a discounted or "wholesale" price and you sell for a higher price. Well if only it was that simple, there are a lot more variables in this process than selling a car for instance, you will need to do extensive research on the property you are purchasing, the area you are looking for, the costs involved such as renovation (if any), fees, stamp duty (if any), taxes etc. But this shouldn't put you off, as buying to sell properties can be a very lucrative investment.
When you are starting off looking to purchase your first property make sure you are looking for something cheap and cheerful. A property that does not require too much building work and basic decorating will be a good starter. You do not want to invest a lot of money into your first couple of projects as you will need to use these as opportunities to learn strategies and processes on "flipping" properties. So the ideal scenario will be to start a project with a total timeline of a month after purchasing to selling a property. The ideal markup you should look for is at least 20% profit and take into account any extra cost that may occur whilst undergoing the project (this is most likely to happen in most cases) anything above this figure will be a well deserved bonus.
Make sure you have a team lined up to be able to renovate the property before you purchase the property as your ideal scenario should be to start working on the property the next day after purchasing. Renovation cost is key to the profits you will make once you have sold the property, so make sure you keep costs down in all areas. One of the key mistakes investors make is they get carried away with the design of the property and the finishing, but as for your first couple of properties you would want to make sure you have the basics covered and the property looks livable and photographs well.
Whilst looking for an ideal property to purchase try to look for specific things you could do to add value to the property so you can sell for a profit, such as make more space within the property. For example knocking down certain walls and combining the kitchen with the dining room, so you can convert the current kitchen into a bedroom. Look to see what can be done in the garden area, adding new paving slabs and new fresh lawn can change the look of the property straight away. All of these things will add value to the property, a 2 bedroom house will become a 3 bedroom house so you will now have a bigger target audience of a family with kids.
The longer you are working in a project the more cost you will occur, such as water, gas, electricity, council tax, mortgage, insurances etc. so have a timeline in place for the project and try to stick to it as best as you can. Preparation is key so plan ahead before diving straight in. When its time to sell your property its important to shop for real estate agents with low fees to save you money. You can now also use online agents where you pay one upfront fee instead of a percentage of your property value. See our review on YOPA.
Purchasing a property to put on rent is a great way of earning a monthly income whilst the mortgage of the property is being paid off. Both are dependent on what mortgage you choose.
The first option you have is to only pay of the interest, which means you will not be paying of the property mortgage amount but instead will have more PERSONAL cash left over each month. You will of course still have the same amount of debt left to pay for the property but most investors do not worry about this. As when selling the property, most likely the property value would have risen and the extra cash received every month can be used to invest in more properties. You will not need to worry too much about paying of the mortgage within a set mortgage term, as you can keep on re-mortgaging the property, which makes the repayment date move further into the future.
The second option you have is to choose the mortgage where you repay the capital, so you will have less cash left over every month, but the property mortgage amount will start to decrease every month, so by the end of the mortgage term you will be mortgage free.
Before starting this venture you should consider a few factors. Firstly affordability, do you have enough capital to purchase a buy to let property. As it is not like purchasing a residential property, where the loan to value amount is higher. Buy to let loan to value is usually around 75%, so having 25% of the property value to hand will be a good start. You also should take into considerations any renovations you may need to undertake before putting the property up for rent. The fees included in purchasing the property, mortgages, solicitors etc. Stamp duty for buy to let properties are considerably higher than residential so make sure you are aware of the amount you would need to pay dependent on the property value.
Another cost that many beginner investors do not take into consideration are the "voids" where the property is unoccupied, whether it is during purchasing the property and renovations completing or when tenants decide to move out and the time spent finding a new tenant.
It is essential to get in contact with a mortgage broker who will help with all the details more specific to the property you will be purchasing.