Residential property investment is NOT a get rich quick scheme.
With good planning and prudent investment residential property can be a get rich slow, whilst you’re busy doing something else scheme.
Residential property investment, done properly, can provide you and your family the freedom and financial security to make your own decisions about your future. But it takes time.
How long will it take? I have no idea but the sooner you start the sooner you might get there.
The best definition of residential property investing I’ve ever heard is:
To acquire multiple appreciating assets ( individual properties ) using other people’s money ( mortgages ) and then have another person (a tenant) pay the interest on the money and wait for the capital value to increase whilst you’re busy doing something else……
Now you will notice that the definition refers to a house, or apartment, (or land for that matter) as an asset and from here on in that’s how you should start thinking about it; just another asset class like gold; shares; government bonds; frozen orange juice or even oil futures. In each case if you were to buy enough of them and hold on to them for long enough then with a fair wind and a bit of luck you could secure your family’s financial future.
So why choose residential property then?
1. If you buy a house or apartment you can get somebody to live in it and pay you rent.
2. If you buy a house or apartment you can get somebody to lend you the money to buy it.
You can’t do that with frozen orange juice can you????????
Back to the definition then.
To acquire multiple appreciating assets. (Lets start with a single property.)
For the theory to work you have to buy an appreciating asset so the question is “will property rise in value over the medium to long term, say 10-15 years?” Given that everybody has to live somewhere and according to figures from the Office of National Statistics (ONS) there are more and more everybodys (mainly due to longevity) and less and less somewheres(mainly due to historically low housebuilding) then demand is naturally going to increase with more people chasing less houses and increased demand almost always means higher prices. So that means that there is every likelihood that property prices will increase above the rate of inflation in the medium to long term, BUT MORE SO IN PLACES WHERE PEOPLE WANT TO LIVE!!!!!!!!!!!!
Which brings us neatly to
…….. have another person ( a tenant ) pay the interest on the money. So it only works if you can find a tenant. That means you can’t just buy any old property, you have to buy one of the style and type and position that people will want to live
NOW AND IN THE FUTURE.
- NOW, SO THAT YOU CAN FIND A TENANT TO PAY YOUR MORTGAGE and,
- IN THE FUTURE, SO YOU WILL HAVE SOMEBODY TO SELL IT TO and realise your profit.
(NB by the way, your profit is locked in when you buy, but your profit is realised when you sell. So you need to buy a property now at a good price of the style and type and position that people are likely to want to continue living in.)
So, before you buy a residential investment property ask yourself two questions
1. Can I rent it?????
2. Can I rent it?????
Or more specifically
1. Can I find a tenant within a reasonable period, namely immediately upon or just after legal completion, who is likely to hang around for a bit and pay me enough rent to pay my mortgage and have a bit left over (also known as “produce a positive monthly cashflow”)
2. Can I say with a reasonable amount of certainty that demand for this style and type of property in this location is likely to remain high for the foreseeable future thereby meaning that I can continue to rent my property until I wish to sell it and realise my profit (also known as your “exit strategy”)
If either answer is no then walk away (unless of course you have another compelling reason for saying yes).
And now lets go back to the definition and look at
……..using other peoples money (in this case a BuytoLet mortgage )
You can of course just use your own funds to buy a property but there are very sound financial reasons, found elsewhere on this website, ( go to why use a mortgage ) for using available cash to buy multiple properties rather than just one. The question is can you get a mortgage. Well frankly BuytoLet mortgages are a lot easier to come by than they were during the height of the credit crunch and as the banks pay back their government loans and subsidies, gradually wash out their toxic debt and become more free to lend money to whomsoever they wish then this trend is likely to continue.
Until recently residential mortgages for first time buyers were quite tricky to secure without a substantial deposit but the Coalitions initiatives to help first time buyers are having a dramatice effect because they essentialy reduce the amount of deposit required making first time buyers more able to get on the property ladder.
Now the most reliable BuytoLet properties are those that normally attract first time buyers so you are currently in competition with many first time buyers which means that discounts offered by developers are shortening so prices are holding firm and in some places being driven up.
The first time buyer residential mortgage position is likely to continue to improve over the medium term because the banks still see residential mortgages as a profit centre not to be ignored and that is good news for you because in, say, 10-15 years time you can find a nice young couple to buy your investment property and realise the profit that you lock in now.
We said earlier that:
Residential property investment, done properly, can provide you and your family the freedom and financial security to make your own decisions about your future.
Now we have established that you need just two things for your residential property investment to be “done properly”.
1. A property of the style and type and location that people want to live in for the foreseeable future at the best possible price.
2. A BuytoLet mortgage.
Simple eh?? We like simple.
There are two other thing that you need that we haven’t mentioned.
1. You need some money and
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