21 questions to ask yourself before investing in UK property
Successful property investors all have one thing in common: they have a plan, and simply don’t make it up as they go along. They read investment blogs and digest all the property investment education they can get their hands on before investing.
A good friend of mine is a project manager and controls projects worth multiple millions. The services are in constant demand. When I asked my friend to explain the secret of his success, he simply said, “Advance planning”. He told me that with every project he works through a list of questions with the client. These include questions about objectives, budget, maintenance, plans for the future, and so on. Armed with this knowledge, he then plans a project to the nth degree – especially when it comes to allowing for the unexpected.
Here’s a list of 21 questions that you should ask yourself before planning a UK property investment.
Questions about your goals for your property investment
These are questions about your financial aims for your investment. They get you thinking about whether you are investing for long term or make a quick killing. Remember that investing for short-term capital gain relies on the property market continuing to push ahead. The value of this strategy is mostly dependent upon property investment research of the property market cycle and the timing of your investment.
When you invest in property with a long-term mindset, you eliminate this reliance on the property cycle being kind to you.
(Download our free investment research eBook, “The Property and Economic Trend Cycle” now to learn how to predict the future of property prices.)
- Do you want to invest in property to sell quickly and make a capital gain (a strategy called flipping)?
- Do you want to hold for long-term capital gain and regular passive income?
Questions about location for your property investment
Many property investors begin by investing in a property near their home. While this might sound a reasonable idea, by limiting your property investment search to such a narrow area you’re limiting investment choice – and that could limit your profit potential. As I discussed in my investment blog post “The fundamentals buy the property, not the deal”, always base your investment on good, solid fundamentals.
Instead of restricting your search to the type of investment property in your area, consider location first.
- What infrastructure is there which will support the local housing market today and in the future?
- Are local authority spending plans simply plans or are they commitments?
- What are the prospects for the local economy?
- What about transportation – is it easy to commute, for example?
- Are there regeneration projects in place that are increasing the appeal of living in the locality?
Questions about the type of property
Different types of property attract various types of tenant. You’ll want to think about the location and what type of tenant it attracts, and then consider the kind of property that will produce the best returns (by being in highest demand). Different property types also have different landlord requirements.
- Will you buy an apartment, house, or house in multiple occupations (HMO)?
- Will you invest in off-plan property, new build, key ready, or existing build?
Questions about finances
Okay, so you’ve found your ideal location and the type of investment property that will perform best in that location. Rounding off the investment deal is the financials.
- What is your budget?
- How much deposit do you need?
- What about expenses, such as property management and maintenance?
- What do you anticipate the rent will be? (Research is needed to get a good estimate of probable rent.)
- What if mortgage rates rise – how will that affect your cash flow?
- How will void periods affect your cash flow?
Our investment guides that ask why cash flow is important to the buy-to-let investor provide useful information for all property investors, as well as a real-life story about a client whose life was transformed because he planned for the unexpected when calculating his cash flow.
Questions about the long-term
If you’re investing for the long term, perhaps to enjoy the fruits of consistent and growing rental income, then you should consider how you’re going to get the best tenants and how your investment property will be managed going forward.
- How will you market the property?
- When you receive an application to rent, how will you vet the prospective tenants?
- Do you plan to make property management your new profession?
- Will you hire a property manager to look after your investment? (Perhaps allowing you to spend the rental income while lying on a sun-drenched beach!)
Questions about your exit strategy
It is something that most beginner investors fail to think through. If all goes well, your exit strategy will probably be to sell your portfolio and retire, or leave your property wealth to your children or grandchildren. You may need to consider using trusts, setting up a company, or calculating capital gains tax liabilities.
But remember my friend, the project manager? He always makes sure he has an exit strategy for when the unexpected happens. That way he can be flexible and remain on course to meet his objectives.
- What will you do if your cash flow turns negative and you can’t sustain the costs?
- Do you have more than one exit strategy?
Plan to prosper from property and you will
In our property investment blog “7 reasons why investing in property beats all other investments”, we discussed a variety of advantages that property offers investors. For example
- Some incredible tax breaks on property investment that can help you to reduce your tax bill.
- You can benefit from leveraging.
- Rental income is about three or four times the average Dividends paid on shares.
- Property values have consistently outperformed stocks, despite the lower price volatility.
Of course, there’s little to no interest paid on savings accounts today. Gilts pay only a fractional coupon, and premium bonds pay even less on average.
As an investment, residential investment property in the UK is something of a no-brainer: demand has outstripped supply for decades and is likely to continue to do so. It is a compelling positive for property values.
But, if you don’t plan your investment and it goes wrong, or it doesn’t perform as well as you had expected, there will be only one person to blame. And you know who that is.