Many individuals invest in real estate to boost their income and gain greater financial security. But while the journey can be rewarding, it also requires committing a significant amount of your own time and money.
So, how do you know if property investment is right for you? In this guide, we outline what you need to consider when making your decision, from assessing your personal finances and setting goals for the future to exploring the pros and cons of becoming a property investor. Let’s get started.
What’s your appetite for risk?
While property is usually a safer investment option than stocks and shares, there’s no guarantee you’ll get a good return on your investment.
Properties can depreciate in value, and unexpected expenses can add up – so you need to think carefully about your appetite for risk.
Exploring strategies such as diversification and taking out property investment insurance can help you mitigate some financial risks along the way.
What are your investment goals?
Before you make your decision, you should think about your investment goals. You can start by asking yourself a few questions:
How will you generate an income? Knowing how you intend to make an income from your investments can help you set achievable goals. Will you rent to tenants, turn properties into holiday homes, or renovate them to increase their market value?
How will you use the extra income? Will your investments help you achieve a particular financial goal? Perhaps you want to use the profits to help fund your retirement, or maybe you just want to gain more financial freedom.
Do you want to grow your property portfolio? What are your long-term investment goals? Will you focus on one or two properties, or are you hoping to build a large investment portfolio over time?
Can you take on the extra responsibility? Money isn’t the only resource you’ll need; property investment is also a significant time commitment. property investment requires active management. Consider whether you have the time to carry out extra responsibilities such as property maintenance and repairs.
So how can you get the most out of your property investments?
Tax strategies
Looking into how taxes affect property investment is key. It’s essential to determine the optimal strategy for managing your properties to minimise tax liabilities, taking into account your individual circumstances.
Corporate landlords, often structured as limited liability companies, play a significant role in the property market, managing a diverse portfolio that includes residential, commercial or mixed-use properties on a larger scale.
In contrast, individual landlords tend to own and manage a smaller number of residential properties directly, providing them with rental income and adopting a more hands-on and personalised approach to property management.
The decision to form a limited company for property acquisition depends on the number of properties you plan to own. Setting up a limited company may be a costly option if the plan is only to have one or two properties. However, if you’re aiming to expand your property portfolio, starting with a limited company may save money and hassle in the long run.
Tax regulations vary for each structure, so it’s best to seek advice from an accountant before making a decision.
Do your research
Aspiring property investors should carry out thorough market research before taking the plunge. Looking at current property prices and mortgage rates can help you find the deals that work best for you. Keeping an eye on market trends can also help you determine whether now is the right time to invest in property.
There are several factors you’ll need to consider in 2024. A recent forecast from property website Rightmove suggests that average house prices in the UK will fall by 1% this year, which could be good news for property investors on a budget.
Meanwhile, changes in market interest rates mean that the cost of mortgages is coming down. Earlier this year, Bank of England governor Andrew Bailey told MPs that he hopes this trend will continue as UK inflation approaches the Government’s 2% target.
On the other hand, ongoing economic issues and higher property taxes in 2023 contributed to thinner profit margins for many UK property investors. As a result, more landlords have been streamlining their portfolios or exiting the buy-to-let market altogether.
The property investment landscape is likely to shift further in the coming year, so choosing the right time to invest is key. Working closely with property experts and financial advisers can help you make well-informed investment decisions that set you up for success.
Diversify your property portfolio
Diversification is a key component of investment risk management. Spreading your investments across property types and locations can mitigate the impact of market fluctuations on your overall portfolio.
Let’s say you own residential properties in several different locations across the UK. If the housing market worsens in one area, you’ll still have a steady income from your investment properties in the other locations.
Additionally, diversifying your property investments means you can benefit from different income sources. This not only boosts your overall returns but also gives you a stronger financial position, helping you navigate market changes and take advantage of opportunities in different parts of the real estate market.
Work with financial experts
As your financial advisers, we can provide support every step of the way, whether that means helping you decide whether property investment is right for you or offering expert tax planning advice.
Professional accountants can also take on many of your financial management and bookkeeping tasks, reducing your administrative burden and freeing up more time for you to focus on your other responsibilities.
For further information contact Cottons Group on 01604 632116 or visit www.cottonsgroup.com
Managing Partner
Cottons Group
