Plan for success in any asset
Over the past couple of weeks, I’ve written a few articles to help you decide your goals as an investor. I have, of course, concentrated on property investment, though many of the principles I’ve discussed hold true for all investment assets. To recap, here are links to all those articles:
- It’s the mechanics of ROI that make property investment so attractive
- Aligning your goals, ROI and risk when you invest in property
- Your introduction to property investment risk and mitigation
- Are your investment goals achievable?
- Pump up your property investment profits by acting like a professional
In this final article in the series, you’ll learn the seven essential considerations to make before investing in any asset – whether that be property, shares, bonds, or commodities.
1. Invest to achieve lifestyle goals
Invest for the right reasons – to improve your lifestyle. Consider your objectives, and write them down. Make sure they are SMART goals – specific, measurable, achievable, realistic, and time-bound. Take your time to do this.
(Hop over to read a little more and “keep it simple with the property investment lifestyle ROI method”)
2. What type of return do you need?
Only after considering your lifestyle goals can you decide on the type of return you need to achieve them. Do you require income or capital growth? How much will you need to achieve your desired lifestyle?
Invest in a buy-to-let property and you have the potential to make both income and capital growth. In fact, you’ll find that there are five streams of passive profit from property investment:
- Rental income
- Capital growth
- Profit from leveraging
- Protection against inflation
- A legacy for generations
3. Consider your risk profile
Ensure that you have the capacity for the risk associated with any investment. Ask yourself how much you can afford to lose. If you have a sufficient emergency fund, your capacity for risk will be higher.
You should also think about how you would feel if your investment temporarily falls in value. You may need to consider factors such as your age, health, marital status, children, investment experience, and your personality.
4. Risk mitigation
Whatever the asset, there will be a risk to consider – even cash is not risk-free (for example, the risk of loss of value due to inflation). You should consider the risks involved, their nature, and how to reduce those risks to an acceptable level.
5. The need for a cash reserve/emergency cash
Emergencies happen, usually at the most inopportune time. And they always cost money. Consider how you would manage financially if you lost your job, for example. It pays to keep an emergency fund available for personal emergencies.
When investing in property, you should also keep a cash reserve. This should be large enough to pay your costs should you suffer a void period, and cover unexpected maintenance needs.
You may also need to keep an emergency fund available for other investments; for example, if you have invested in shares for the dividend income and the company stops paying a dividend one year.
6. Tax and the structure of your investment
No one I know likes paying tax, but whatever asset you invest in there will be a tax to pay. Tax on the income and tax on the capital gain made when you sell.
You should consider your individual tax position, and how much tax you may have to pay on your investment. If you are investing in shares, for example, you might decide to invest via an ISA (though the amount you can invest is limited).
You may be able to structure your investment differently to reduce your tax, and therefore increase your after-tax profits. Investing in property as a limited company may save you substantial amounts of tax over the lifetime of a property investment.
Take tax advice before you invest, and invest in the best way possible to reduce your tax liabilities.
7. Managing your investment
Do you want to actively manage your investment, or do you want a professional to do the job for you?
When you invest in buy-to-let property, you have the option to manage the property yourself or to have it managed by an investment property management company. I know which I choose – but that’s because I value my time. I don’t invest in property to run around after tenants every day!
Do you want to know how an investment in property could change your life and bring your lifestyle desires closer? Book a property investment strategy consultation by contacting Gladfish today on +44 207 923 6100.
Live with passion and fun,
Brett Alegre-Wood
