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This Is My First Time Buying an Investment Property – What Should I Be Doing?

Sunday 27 September 2020

Written by Barry Soraff

This Is My First Time Buying an Investment Property – What Should I Be Doing?

This Is My First Time Buying an Investment Property – What Should I Be Doing?

I meet a great number of people who ask me this question – sometimes it is existing clients who are about to step into the market for the first time; other times it is people I am meeting for the first time, vaguely aware that they should consider taking some tax advice before proceeding.

Whoever they are, the conversation usually has some common threads and I have listed below what I think are the most common dos and don’ts for the first time property investor.

  1. DO have a clear strategy – What type of property are you looking for and why? Do you have a geographical area in mind? What financing will you need? How will you manage the property? What income will be generated? What returns are you looking for? What’s your holding period? Are you looking to build a portfolio or simply invest some surplus cash?
  2. DON’T overgear – It is tempting to borrow the maximum you can and put down the least amount of cash.  Certainly a simple financial analysis suggests that this will generate the highest return possible on your cash deposits. However there are other factors to consider – can you sustain void rental periods? Are you susceptible to changes in interest rates? Do you have the reserves or the surplus income to carry out whatever maintenance might become due?
  3. DO take advice – There is a huge amount of information available on the internet and otherwise in the public domain so it’s tempting to think that you won’t or don’t need good advice.  Remember that everyone’s circumstances are subtly different and that property regulations, tax legislation and landlord requirements have in recent years changed very dramatically often very quickly and with little notice.  Good advice will ensure you are compliant with applicable laws and regulations and that you are getting the best return possible. I have written previously about the myriad of different taxes that property investors need to consider, how quickly those can change and how subtle changes in structure can make very significant differences to tax exposures.
  4. DON’T rush in – Finding the right property to fit your particular investment strategy can take time.  Rushing because you think the market is in flux – it often is – or because you have one eye on the re-introduction of higher rates of stamp duty land tax next year can lead to expensive mistakes.  Property investments are for the long term so undoing mistakes made in haste can be difficult and very expensive.
  5. DO consider alternatives – These days it seems everyone is a property investor. Remember that buying property is complex and ties up significant capital long term.  There are alternative ways – often less risky – to invest in property.  There are specialist investment funds that allow you to invest in property by “piggy-backing” their expertise and capital to be part of managed returns with lower risk. And of course, putting all your eggs in one basket by investing solely in anything including property is risky.  Property has its place as part of a balanced investment portfolio but is often best left to the experts when it comes to risk taking.

Either way I am always available to discuss these issues and any others. You can reach me by email at barry.soraff@raffingers.co.uk.   

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