If you’re new to investing in property it can be a complicated process to navigate. Here at Propio, we take a look at where to start and some of the questions that you should ask before you begin.
Is property investment right for me?
Investing in property can be overwhelming, expensive and quite often, exclusive, so the first thing you need to do is educate yourself. That may be from reading articles and blog posts like this one or speaking to someone with experience. You need to think about a number of factors when investing in property including; your budget, the amount of time you have to manage your investment, how soon you might need to access your money, current market trends. Below we breakdown some of the most important questions you can ask before investing in property.
Do I have enough capital to invest in property?
For many people, this is the most obvious, but potentially limiting factor when it comes to determining whether you can invest in property. Traditionally, to invest in property, you would have had to own a property directly which might involve a deposit and some sort of loan. For the majority of people, finding the lump sum required as a deposit on a property is a rather large barrier to investment. Combine that with recent tax changes and stamp duty and buy-to-let may seem like an unobtainable option.
Alternative property investment marketplaces are, however, changing the entry barriers to investing in property. Platforms like Prop allow customers to invest from £1000. Despite this low entry threshold, we always recommend our retail investors assess their financial status on an individual basis and only invest a portion of their net assets.
Do I have enough time to invest in property?
When investing in property, there are two ways to get involved: actively and passively. An active investment will involve you acquiring and managing a property yourself – usually a buy-to-let – which could involve tenant management and property maintenance.
Alternatively, if that all seems like too much work, you can invest passively, allowing professionals to acquire and manage properties on your behalf.
What kind of returns should I expect?
As with any kind of investment, there is always risk involved, and returns can never be guaranteed. Despite this, it’s really important to use the information provided to you to better understand the risk associated with an investment and what you can expect back.
How soon will I need to access my money?
Assessing liquidity – or when you are likely to need access to your money – is another incredibly important factor when selecting an investment. In its simplest terms, liquidity is the ability to buy and sell an asset easily. Whilst it may sound like a good thing, investors often pay a premium for highly liquid investments such as REITs and stocks, as they have the ability to access them at any time. Property, however, is generally considered illiquid, and as a result, can often return more value to investors.
You need to ask yourself whether your life stage or expenses will require that you access your money before it naturally liquidates or whether you would rather earn greater potential returns in the long-term but have your investment locked up for longer.
How much risk can I afford to take?
When assessing an investment, you need to think carefully about whether you can realistically afford to lose all of your investment. Before taking on any investment, be sure to do your research so that you fully understand the risks involved, how to mitigate them and ways that you might be able to access fairly priced risk.
Here at Propio, we have a 52-point due diligence process to help us assess the risk associated with an opportunity. However, we always recommend that our investors do their own research before putting money into an investment.
What do I need to know about the market in the area I’m investing in?
Generally speaking, land in the UK has increased in value over time, but that doesn’t mean that everywhere presents an equal investment opportunity. If you are investing in property in the traditional way, you need to know a lot about the market and the area that you are investing in and the things that might affect the value of your investment property now and in the future.
Many alternative property investment marketplaces do this research for you by assessing the area and considering any factors that may affect the value of the property in both the short and long-term.
How can I start investing?
The questions above involve a lot of planning and due diligence to help you understand what your investment goals are and how any investments you make might play out. If you feel that investing in property is right for you, but don’t want the hassle of buy-to-let, then platforms like Prop present a great opportunity. You can learn more about investing with Propio here.