What is property investment?
There are four main types of property investment. The three most common types include:
Cash
Bonds
Shares
Additionally, property investment can occur in many forms. The most common include buy-to-let and property fund investment. In this article, we have provided the key facts about investing in property, different forms that exist and potential risks that could crop up.
Why should I invest in property?
When owning and managing a property, there are two ways in which a return can be made:
Selling: You can buy a property, then sell it at a higher price in a few years’ time
Renting: You can earn an income by letting out a property to tenants
Not everyone wants to purchase a property in order to earn an income or supplement an existing one. Fortunately, it is possible to benefit financially from property without having to do this. This can be achieved through investing into a property fund which its self invests in property.
If neither of these work for you, you can also invest in property management and maintenance services.
What are the risks of property investment?
Property investment is a long term process and so property investment is only for people that are committed to it. This is because property prices can fluctuate, and demand for rental properties varies throughout the year.
People that invest in property must be willing to bear periods when property values drop. Once the market picks up again, this is when profits can be gained.
There can be risks in property investment, particularly in buy-to-let properties. This is because when the market slows down, an individual could experience financial difficulty. It is possible to avoid such an occurrence by having a diverse range of properties as part of your investment.
How can I invest in property?
Buying directly
There are some risks to buying property. These can occur as a result of buying or investing in property. Some of the risks include:
Money being tied up in property: If the market is slow or your home is difficult to sell, your investment cannot be released until the property is sold.
Large commitment: When you buy a property, a lot of money is tied up in one place which can be dangerous.
Costs: When buying and selling properties, there are a number of costs that crop up. These include: estate agent fees, land tax, stamp duty, solicitor and conveyancing fees. It is worth noting that 3% extra is required on top of existing stamp duty when buying a house or buy-to-let property.
Hard work: Ensure that you have both the time and money to invest in a property. Additionally, if you do not own a property outright, you might need to extend the lease.
There are also risks associated with taking out a mortgage. These include:
Potentially not earning enough rental income to cover the cost of the mortgage
Rise in mortgage interest rates meaning that the property is too expensive to pay off
Re-possession of the property if mortgage payments are not regularly made
Property investment funds
It is possible to take part in a pooled property fund. This is when multiple individuals pay into a fund. An individual then uses these funds to pay into the property or property shares.
There is a risk associated with paying into a property investment fund. This is that the fund manager will take a fee for this service. As a result, this could have a detrimental effect on your earnings.
Many types of property investment funds exist. These include:
Property unit trusts
Property investment trusts
Offshore property companies
Real estate investment trusts (REITs)
Shares in listed property companies
Insurance company property funds
What do I need to think about before investing in property?
Before investing in property, make sure that you have carefully considered the risks associated with investment. These can include:
Money being tied up in property
Lots of money tied up in one place
Costs of buying the property
Hard work required by owner
Make sure to do your homework before investing in property. It is possible to consider the advantages and disadvantages of property investment if you have some prior knowledge of it. However, if you have never done this, it is highly beneficial to access professional advice.
Be sure to consider all your investment options. Don’t just rush into the first option that you arrive at.
Are you thinking of investing in residential property in London, Lisbon, Madrid or Austin?
Contact Knightsbridge Ventures today using our on-line form and see what we can offer.
Knightsbridge Ventures are an Austin/Texas based private investment company who specialise in off market, city center and value added residential properties in the luxury and mixed-use market. We allow accredited investors and institutions to co-invest in London, Lisbon, Madrid and Austin.