In a world of uncertainty, people are looking for safe places to put their money, and property is always appealing in this context. Of course for newcomers, there’s a bit of a learning curve to contend with, and it’s important not to make mistakes which can derail the dreams of novice property investors.
To that end, here are some choice considerations that you can’t afford to ignore if you want to build a property portfolio which delivers decent passive income without costing you dearly.
What type of investment should you make?
There are a few different ways to invest in property, and the route you choose depends on a few factors. You could buy a house to rent out, with the payments made by tenants either giving you a return if you were a cash buyer, or paying down a mortgage if you had to take one out to afford the property in the first place.
You could purchase a house that’s in need of renovations, and then sell it on for a profit after the improvements have been made.
You could give your cash to a real estate investment trust that will use it, together with capital from other investors, to manage a property portfolio for you as a collective. Knowing about your options, and understanding the differences between them, is crucial before you commit.
How much risk is involved?
Every investment comes with a degree of risk, and you have to be aware of this, even if you are choosing property because it is considered by many to be a relatively safe bet compared to stocks and crypto.
You can minimise some of the risk by working with experts in this type of investment, such as property developers in Manchester that work with investors to generate reliable returns. This is sensible if you are both unversed in the ins and outs of the property market, and also don’t have the time to commit to expanding your knowledge.
The main risks are that the value of any property you purchase falls below the original amount you invested in it, meaning that if you sold you’d be left with less cash than you started with. Of course if you’re planning to hold onto a house and rent it over years or even decades, the chances are that any minor market volatility will be irrelevant, so long as it is a short term issue.
What are the tax obligations of landlords?
When you make money from property you own, this is taxable. It typically falls under the category of income tax, while if you sell a property for a profit, this will be subject to capital gains tax.
You can reduce your tax burden by ensuring that you claim for relevant expenses; for example, if you include things like utilities costs in the rent, these can be deducted from your tax bill. Insurance payments and management fees paid to letting agents are also deductible.
It’s best to get an accountant to handle your tax needs for you, as this can quickly become complex, especially as your portfolio grows, or you get seriously into flipping houses.
What are your goals?
Ultimately there’s little point to making any investment if you don’t know why you are doing it. You need aims to ensure that you pick the right type of investment, so that you can align your choices going forward with your strategy.
Property is usually better as a long term investment, and plenty of people use rental income from homes in a portfolio to supplement their pension. If you want to make a living from it right now, it may be worth considering a career in property development, which is a little more hands-on.