Property investment is still one of the most popular ways for people around the world to invest their money, and more and more people choose building a property portfolio over putting their money in a financial trust or scheme.
The buy-to-let industry is a huge one, and some individuals have made their entire living based around buying properties and letting them out to tenants. While it can be an extremely lucrative market – it also has its pitfalls and it will serve you well to know everything you can about it before investing in a buy-to-let property.
One of the first mistakes that many property owners make is not calculating their ROI, or return on investment, before building their property portfolio by adding a buy-to-let property. Many landlords simply don’t do an in-depth calculation of how much money they are making on their rentals a month and simply let the money come in without knowing how they’ll profit in the long run.
Calculating the ROI on a property
Before building a property portfolio you need to know how to calculate the ROI on a property. This ensures that you know the potential for profit on a property before you decide to invest in it. So how exactly do you calculate the ROI on a property?
Well, if you are lucky enough to be in the position to purchase your property with cash, and you didn’t have to take out a mortgage, then working out your ROI is pretty simple, as shown by this Investopedia article.
The process gets a lot more complicated when you have taken out a mortgage or loan from the property, as explained by the same Investopedia article mentioned above.
Once you have worked out the ROI on the property you are looking to buy then you can start building a property portfolio that you know you will make money from.
What to look for in a property to ensure a high ROI
There are a number of different factors to look at before you invest in a property, and these are the three things to keep an eye out when building a property portfolio, if you are looking for a great return on investment: Starting small; the property itself; the location it is in.
Start small and don’t overcomplicate things
Before you start building a property portfolio you need to take stock of your own finances and the future potential of what you have in your pocket. While it may be tempting to splash out on a big property in an established area, you need to consider the upward trajectory of interest rates and taxes when it comes to mortgages and owning a second home. Keep in mind that the stamp duty on second properties in the UK has increased by 3% this year.
It’s best to start off buying well within your financial means, as you don’t want to overstretch yourself. The price of a property needs to be absolutely right if you want to purchase for buy-to-let reasons, as you are trying to get back everything that you spent. By purchasing a very expensive property you are setting yourself up to take much longer getting the money back. Start small, within your budget and don’t overcomplicate the process where you don’t have to.
The property itself – amenities, designs and finishing
We all have different tastes when it comes to property, but according to this Venture Property article open plan and spacious kitchens are an up and coming trend in 2016 and many people looking to rent/buy property are looking for this.
The design of the house is incredibly important and it needs to flow. If it is a multi-level house then the bedrooms should be upstairs together and the kitchen/living areas should be down stairs. If the house you are looking to purchase is designed badly, simply look into how much renovations would cost and if they would be worthwhile to do. Will the renovations have a positive or negative effect on your ROI on the investment?
Know which areas are the best for investment
The best investment properties are those in areas which will be up and coming in the next couple of years. Learn how to identify an area that is undergoing gentrification, remodelling and new business/residential projects. That way you can invest in a very reasonable property, remodel it and rent it out for a higher amount than it would previously have fetched – ensuring a large ROI on the property. Schools, universities, hospitals and public transport are always desirable in an area – so keep this in mind when you are looking around.
A great return on investment is the ultimate achievement on a buy-to-let property, and a great ROI is acquired through the factors mentioned above. Foreign property is a great addition when building a property portfolio, as prices and tax numbers tend to work more favourably than in the UK – this is why property for sale in Calpe is getting snapped up like never before. If you are looking for property in Calpe or the Spain’s incredible Costa Blanca area, then contact us for the best investments on the market.