Investing in property is considered to be one of the safest investment options in the world. That is the reason why so many banks and individuals are willing to lend against it. If you’re thinking of adding a residential property investment to your portfolio or simply want to take that first step onto the property ladder, this type of asset will cater well for your requirements. However, to ensure you get the most from your investment, there are three ways in which you can maximise your returns. So before you begin to view potential residential investment properties, be sure to consider these simple components.
1. Exit Strategy
When investing in residential property, the most important thing to consider is your exit strategy. Every investor must put one in place before making an offer and failure to do so can result in costly and time consuming complications. Focus on how and when you plan to sell your investment and make a profit. Think about the future. Will you want to sell the property in five years time? Is it likely that you will buy another? These are important questions you will need to answer before signing any legally binding documents or handing money over. Make sure you are aware of the state of the economy, employment and interest rates in the area you are planning to buy in, as they can all impact your total profit should you decide to sell up. It is also worth considering what you will do if property values fall or finding a buyer for your property takes longer than expected.
If you are thinking of using leverage, a loan or a mortgage on residential investment properties, make sure you are familiar with the pros and cons. Its effects can be compared to those of a magnifying glass. For example, when the market makes an upward shift, it can hugely improve your returns. On the downside, when the market experiences a fall, you could be left exposed with high level of debt, particularly if you have not built adequate profit margins into your investment plan. Using a profitable model strategy is advisable if you plan to gear up highly, in order to avoid what all investors fear the most: repossession.
3. Tax Efficiency
Before you take the plunge, talk to residential investment property companies and find out about the tax implications of your potential investment. If, for example, you plan on entering into the Buy to Let market, note that the rent you receive will be taxed in line with your basic or high rate tax bands. You will also need to be aware of capital gains tax, which applies to any property that is not your main home.