How to choose an investment property? Although there are some exceptions, for example certain Leaseback properties in France where one can obtain a couple of weeks of own use without loss of income, it is a golden rule not to mix business with pleasure. Choosing a home to live in is a very emotional decision with our heart’s pulling a lot of the decision strings on location, garden, locality of amenities etc., which may not be what the average person would choose.
How to choose an investment property? Choosing an investment property should always be a rational decision on how the facts stack up. How much money can I make and what exit strategy is in place? These are the important factors. So let your head rule investment decisions, not your heart.
Choosing an investment property look at the things that would make the perfect property investment:
A low deposit required so there is only a small cash call for the investor
An “off-plan” purchase in a rising market so there is a period of equity growth before any mortgage starts being payable
Discount to open market valuations which gives an instant equity gain
Good mortgage rate relevant to the local capital gain forecast
Good Capital Gain Forecast
Rental guarantee period that covers all outgoings
Excellent rental demands
Buoyant re-sale market
Realistic exist strategy to sell or refinance
Ability to extract cash for re-investment at any time
Once we have decided a particular location is right for property investment we then have to decide which particular properties are best for sound investments. The important headings are:
Legal aspects – Can we guarantee all legalities are in place to ensure full ownership free from all encumbrances?
Planning Permission – Is firmly in place and the property has been built to the plans submitted?
Experience – Of the builder or estate agent that we are dealing with? Do they have a history of delivering this quality of product on time and to the right specification?
Price – Comparison to other similar properties in the vicinity?
Supply and Demand – Can the area sustain demand for the planned development supply?
Quality – Are we happy with the specifications and build quality?
Re-sale demand – Will the properties be easy to sell on ?
Accessibility – Distance and ease of travel from airports and amenities?
Capital Gain History and Forecast – What has been the recent movement in prices and what is the forecast for the future?
Rental demand – What is the current and likely future demand and rental figures being obtain for similar properties?
Purchasing Deal – Is the purchase deal attractive in terms of discount, low deposit, rental guarantee and/or other package from an investor’s point of view?
Would you stay in the property? This is a subjective view point but one that we always take time to consider. All the due diligence in “numbers” may be very positive but the litmus test is “do you like the property enough to stay in it”? If you can answer “yes” then you are happy that others will also and you are finally ready to recommend the properties to your investor clients. So now as you learned how to choose an investment property it’s time to start looking around for your first investment property.