Purchasing an investment property is a great way to start building equity and saving for your retirement nest egg. Bricks and mortar feel like a safe investment to most people as a home is a tangible asset unlike shares in a company. However, what many people don't realise is that a poorly planned property investment can quickly turn into a liability if the market suddenly shifts or your circumstances change. A clear, well thought-out plan is essential for anyone that has recently purchased an investment property to help keep you focused on your goals and deal with any unexpected bumps in the road.
Let Your Property As Soon As Possible
Every month that your property sits vacant is a month that you will be left out of pocket, so renting the property out almost as soon as you purchase it is essential. If your property requires renovating before it is suitable for tenants, then get this carried out immediately. Although it may be tempting to perform a total renovation and furnish your home to a high standard in order to charge more rent, this rarely makes financial sense. Home renovation costs tens of thousands of pounds, and it will be many years until you start to recoup what you spent. Start advertising your property immediately or contact an estate agent such as Miller Countrywide to help you find a suitable tenant.
Have A Contingency Plan
The recent housing crisis saw many people lose their homes to foreclosure after their mortgage rate suddenly skyrocketed. No matter how stable the housing market may seem, there is simply no telling what may be around the corner. A change in your personal circumstances such as divorce, poor health or the need to relocate could also mean you have to suddenly sell your properties. Keeping on top of your debts and ensuring that you do not end up with negative equity is extremely important to ensure your long-term financial health. It is also a good idea to have an emergency fund put aside to cover any unexpected expenses that may appear. A tenant deciding to leave on short notice, a boiler breakdown or a flood in one of your properties could leave you several thousand pounds out of pocket, so you need to be able to cover your mortgage payments no matter what to avoid falling into debt.
Be Aware Of Tax Laws
Buy-to-let landlords must pay tax on the income they receive from tenants residing in their properties. As well as your monthly mortgage payment, you will also need to pay for many other things such as buildings insurance, repairs and maintenance, service charges and council tax. When searching for a tenant for your property, you will need to pay estate agents fees, accountant fees and the cost of advertising your apartment. Any costs related to your property can be deducted from the amount of income you have to pay tax on, which can help you save a substantial sum each year. If you plan to make a reasonable income from your rental properties, then it is important to be aware of tax laws and how you can use them to your advantage.
Set A Long-Term Goal
Although having a reliable income from one rental property is a great way to pay off your mortgage and increase your net worth, it can also be used to expand your property portfolio. Think about what you plan to do over the next five to ten years, and start taking steps to achieve your goal. Do you plan to purchase other properties in the future and rent them out, or would you rather sell your property after the mortgage is paid and use the money as a retirement fund? Having a long-term plan is essential as building up a substantial property portfolio can take several years, and the sooner you get started the better.
Successful property investors often talk about a five-year plan and how it can be extremely useful in helping new investors focus on their goals for the future. Rather than being a rigid plan that has to be followed to the letter, think of it as a flexible set of guidelines that can be amended to suit the changing market. Securing your financial health with a reliable income from rental properties for the next few decades will allow you more time to focus on other aspects of your life such as family and personal growth.
Lydia O'Brien works as a financial planner and has a working knowledge of property investing. She likes to share her insights with an online audience and is a regular writer for a number of property and investment websites.