Short of property investing experience and lacking in funds? Wondering if you can still invest in rental property and make a healthy profit?
Well, it’s not going to be easy, but you might have more options than you imagined.
Here we take a look at how you can potentially make money from property despite starting at a disadvantage.
Investing in property is increasingly difficult whatever your circumstances. There is increased competition, planned changes to the taxing of rental incomes are problematic, so too are changes to stamp duty rates.
How then do you start with not one, but two disadvantages; a smaller investment lump sum than many investors, and less experience too.
We think it’s best to tackle those issues separately, although there is naturally some overlap in the solutions. We’ll look at the lack of experience first.
How to invest in property when you have limited experience
Instead of lack of experience, let’s think of it as a lack of knowledge and a lack of confidence. The key is to attack that lack of knowledge, once you feel you have done your research and understand what you are doing that confidence will come.
And there is no excuse for investing with a lack of knowledge; in fact until you have sufficient knowledge definitely don’t invest. That might sound harsh, but better a few honest words now than you wasting thousands of pounds.
From property investment you are looking to make money, potentially significant money. Why should that come easy? You will need to understand the market, get a head for the figures and work out a thorough plan.
You will need to give thought to where to invest. The easiest place to invest is an area you know well, probably close to where you’re living right now. However, that area is unlikely to offer the best rates for rental return yields, or the most promising capital growth through property prices.
It might even be that you cannot afford to invest near to your current postcode, so have no option but to consider further afield.
There are tools to help you find great areas to invest, we’ve written a whole blog on the subject here but nothing can take the place of putting the hours in to research. If you’re thinking of investing in an area you need to know the likely rental yields, as well as what type of tenants you are likely to attract.
Who is the main employer in the town? What would happen if a major employer pulled out, could the bottom fall straight out the rental market?
Doing your research also means looking at other investment opportunities; what returns do they offer and how do they compare with those you might hope to achieve from property? How do you factor the risk in, property investment of course comes with a degree of risk, other options might be safer albeit at low levels of return.
We also recommend thinking through the whole process, from buying a property to taking care of any maintenance.
How will you find your properties to buy, if it’s by going to auction don’t make the first time you visit a property auction the time you buy a property. Go for a dry run to get a feel for the process, the pace of bidding and how it all works.
You can also start to get your support network in place. You might let an agent take care of property management, but they will charge a fee, do you feel comfortable doing it yourself?
If you get calls to say the boiler is broken, or there’s a leak will you have to call expensive emergency plumbers, or have a support network of reliable tradespeople lined up? Getting this level of detail right can help make the difference between it being profitable or leading to a loss.
The research and preparation is the easy part though, just put the time and effort in and you can soon be on a more level footing with the experts. Funds though, how do you compete on the finances?
How to invest in property with limited finances
The truth is you can’t easily compete, if there were easy ways to acquire the finances needed to invest in some areas, there wouldn’t be any need to invest in property.
With limited finances, your options are limited, but they are not non-existent.
One thing to consider is where to invest. Investing close to home might be ruled out, but as touched upon earlier there are many places around the UK with encouraging-looking yields, yet at more affordable prices.
Investing in a cheaper area might allow you to quickly build a property portfolio. While you might not have the deposit for one property in your town, that same amount could cover the deposits in several dwellings elsewhere.
Why the need to build a portfolio? With just a single investment property your risk of being affected by a poor tenant, or periods when the property is unlet, or plain bad luck in the form of floods, or storms is not offset against any other property.
But other than invest in cheap postcodes what can you do? What can you do if even that isn’t an option?
Investing as part of a consortium is an option, especially if within the consortium you have diverse skills. In the group would there be the skills to improve or repair a property, or financial skills to help with the accountancy? It might even be that you have skills to bring to a consortium of friends which would make you a worthy partner despite having less to invest.
A final option is crowdfunded property investment, something we offer at the House Crowd. We’re not going to give the hard sell, there’s plenty of information about us on this site if you are interested.
What crowd funded property investment is though is a chance to invest a stake in a property. For example, if you have £20,000 to invest, rather than that being enough for the deposit on one property in a cheap area (leaving little in reserve), it could be split into four £5,000 investments in separate properties. You would be one of numerous investors in each, potentially taking your share of any profits from each.
Crowd funded property investment allows you to easily build a portfolio and so spread risk, while also enabling you to invest in properties chosen by experienced, expert buyers who know what to look for in the housing market.
We hope we have shown that even when your budget is limited and your experience lacking there are still opportunities to invest in property.
Ultimately, it will come down to hard work and your own assessment of the risk vs potential reward on offer. We wish you luck, and if you do have any queries please feel free to get in touch.