Michael Bauer, general manager of IHFM, the property management company, an investor in buy to let property himself, said last week that in these times where the capital growth on investments in property is not as high as it was a few years ago, one has to look carefully at the income you will be receiving rather than the capital growth of the property itself.
Property investment is not just buying and selling, it is the combination of the income it will provide plus the capital appreciation over time.
When investing in plot and plan schemes, for example, it is important to be aware of the pitfalls of investing in this type of property, he said. There have been schemes where investors bought off plan and the growth percentage actually dropped for various reasons.
“When buying you must look for property where you can earn from day one,” said Bauer. “Although property investment is a long term one, of at least five to ten years, when buying to let you must check the income versus the payments before making a decision. Check if the transaction costs are included in the deal.
“If you can, figure out a way of paying off the bond as soon as possible and check if the bond repayment period can be shorter, or if the interest rate can’t be lower.”
The wise investor, however, will always assess his portfolio percentages of cash against property and shares and spread it out over different categories, he said.
“It is important to manage your risk,” said Bauer, “and if buying to let, find an insurance that will cover a loss of rental income in the case of a tenant defaulting on his payments, hereby minimising the impact to your financial stability.
“You should remember that your portfolio is a business, set up a proper business model and stick to it. Check your “books”, i.e. your financials regularly and be proactive in rectifying problem areas.”