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When it comes to starting up a property portfolio, many budding investors have trouble getting off the mark. While their ideas and ambition may be great, they have trouble ensuring their first buy is the right one to act as a backbone for further investments. As such, what should you look for when making your first real estate purchase?
Choose an Area with Investment Potential
When choosing a neighborhood to invest in, it's important that you don't make a decision based on money alone. Many property investors aim for a specific end of the market and purchase either luxury properties or low-end, cheap apartments. However, landlords who adopt this approach run the risk of miscalculating value for money and don't take additional factors into consideration that influence rent prices.
The attractiveness of a property does not rely entirely on the attractiveness of the home itself. Rather, you have to consider what local amenities are available and what your target tenant will be looking for in a property. To help you along, consider asking the questions below to get a feel for a neighborhood:
By answering the above questions, you'll build up a good idea of the neighborhood you're investing in and where the best properties are located.
Focus on Potential Rental Yield
The success stories of multi-millionaires and their massive investment portfolios can be enough to persuade start-up landlords that they can become rich overnight. Unfortunately, this isn't the case, and you have to start off low before you can begin to build your property portfolio.
The best way to make profit when it comes to property development is to aim for properties with a high rental yield. This means properties that generate a large amount of rent compared to their purchase price, rather than hoping for a short-term boost in the price of the property. Rental yield is generally discussed in terms of annual percentage – a $300,000 property that rakes in $22,500 per year in rent would have a 7.5% yield.
When you purchase a property on a buy-to-let basis, you will usually take this on an interest-only agreement. This means that you will only pay off the interest that accrues on the house rather than paying off the entire mortgage. As such, the money that you generate from rental yield can be put into other investments, or saved towards a deposit on another property. This is how most investors work their way up the ladder, so by following this principal you'll be in great company.
Practice Your Negotiation Skills
One of the major advantages of purchasing a property with the intention of letting it out is that you don't have to wait on your current property selling before you have a deposit ready. This helps you enormously, as you will be seen as a buyer with much less risk than someone who is buying their property after selling their current home.
As such, you should use this to negotiate a discount in price. The majority of sellers will be looking for as quick a sale as possible, so that they themselves can move into another house. Your low risk, immediate sale can help you secure a property discount that may otherwise have been unattainable.
When it comes to real estate, it's important you have professional support moving forward. As such, you should take time to choose a fully qualified broker with the experience and skills necessary to get your portfolio off to a great start.
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