PROPERTY: INVESTMENT GUIDE

Find out all you need to know about property as an investment.

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Property investment falls into two main categories - direct and indirect. The former involves either buy-to-let or property development, while the latter relates to investing through a property fund. 

If you are going down the buy-to-let route, you will likely purchase a property with the intention of letting it out to tenants. This can deliver two types of return; a regular rental income from your tenant and the money earned through the potential rise in value of the property. This second option will allow you to sell for a profit at a later date. A further possibility is buying a house or flat with a view to fixing it up and selling for more than you paid for it. 

By investing in a property fund - and depending on the type of fund - you stand to earn through dividends or rental income. However, this is dependent on the performance of the fund. You can also earn through capital growth when you deem the time is right to sell. 

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Investing in property can be very rewarding and, especially if you choose the buy-to-let option and become a landlord, can add another string to your bow and provide a fun and interesting way to bring in more money. 

Renting out a property allows you to become your own boss (of sorts) and should provide a steady stream of income in the form of monthly rent. You can use this form of investment as part of a short-term plan that enables you to generate money quickly, or a long-term plan through which you receive constant income over a lengthier period. 

Property usually represents a fairly safe investment and offers a degree of flexibility; you get to choose where you want to buy, as well as the types and number of properties you wish to add to your portfolio. 

There is also the potential for high returns. This is because, in order to make a purchase, investors do not need to find funds to cover all of the property value, with the majority of this covered by a mortgage. Should the value of the property increase, however, you will benefit from the climb in total value despite having only shelled out for a portion of it.

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This type of investment tends to require a lot more work than others, including finding both the right properties and the right tenants. Your income is dependent on other people, such as your tenants paying their rent on time and looking after your property. 

It can be a fairly complex area of investment, requiring considerable paperwork and various outlays, including a mortgage, maintenance and insurance rates. Speaking of which, there is always the danger that interest rates may increase, which would likely impact the cost of your borrowing and could mean you struggle to cover your costs with the rental income you receive. 

Problems may also arise should you wish to withdraw your investment quickly, as it could involve the often drawn out task of having to sell your property. It can also sometimes be more difficult to borrow money for a rental property than for your own home and, while unlikely, there is the constant risk that your lender may unexpectedly request you repay the mortgage sooner than anticipated. 

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Although generally perceived as a safe form of investment, there are a number of variables on which the success of your investment will likely depend. These include any rises in interest rates, the ups and downs of the property market in general and not only being able to find tenants, but finding those who will always pay what they owe and not cause you any problems. 

If you're looking to renovate a house and sell it for a profit, you run the risk of the property not selling quickly, or even at all. 

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You will likely be required to take on a fairly hands-on role with property investment, perhaps more so than any other form, and so it is best suited to those willing to put in the hard work in order to reap the rewards later. That said, indirect property investment presents an opportunity to involve yourself in this market without the stress and hassle of letting or renovating a property. 

Because it can be used as either a short or long-term investment, property can cater for many different needs, such as making quick gains or securing steady income for years or even decades.

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As mentioned, this type of investment is dependent on both interest rate and property market movement. But while this can spell trouble, it can also present real opportunities. For instance, if you are able to spot an up-and-coming area early on and buy a property there at a reasonable price, you stand to benefit from any house price and rental hikes in the future. 

 

The information provided is based upon the opinion of Equilibrium and does not constitute advice. Investments can fall as well as rise.