Last updated: 19th March 2020
Every property investor wants to know, ‘how can I make my investment property profitable’? Well, first of all you need to put your emotions and preferences to one side with investments. If you were buying your dream home, we’d be saying something different, but when you’re buying investment properties to rent out or refurbish, this is where you need a very different mindset.
You’ll have seen those flattering photos on Rightmove that instantly draw you in… but that’s what they’re intended to do – grab your attention and make you pay top whack for them.
But you need to remember, this is an investment not a home. It’s very easy to fall in love with a property from the catchy descriptions and photos, it almost puts a mute on the accounting side. Stay focused on the financials!
You don’t need an accounting qualification to decide whether a potential property purchase stacks up financially. There are just three main financial routes you need to consider – the gross yield, the net yield and the overall return on investment. If you don’t have a clue what these are, we did a podcast on this a while back here.
Remember, this is a property investment that you want to generate a profit. You don’t need a top-end, modern property with marble floors and a jacuzzi. Your aim isn’t to wipe out your potential profits before they’ve even started. By all means, if a top-end property is what you have your mind set on and you’re confident it could have higher rental or resale prices, go for it.
But… make sure to have your accounting brain switched on. Crunch the numbers, make sure they still work.
Look out for investment property you believe has potential. One that can earn you a profit whilst being a positive addition to your portfolio.
If you’re planning to flip a property, the purchase price becomes more important because you might not benefit from longer-term factors like capital appreciation because you’re looking to exit quickly. In this case, you’d need to speak to tradespeople who could calculate what the costs are likely to be.
If you’re visiting the auction houses or going to open viewings, you’ll be able to get an idea of likely purchase costs, but be aware that people also use these buying platforms to snap up cheaper property to personally live in – this means they might be throwing more money at the property which means prices may escalate.
With this in mind, it’s worth having a firm budget set ahead of you attending an auction/open house and a strict agreement with yourself to walk away should this budget be reached.
It’s also very useful looking at property portals that show previous sales in certain areas, it’ll give you an idea of realistic prices, and even better, some include the floorplans and photos which can give you a rough idea of added values and the likely uplift
Just doing basic research in general on past and current property listings will help you get that better understanding as a whole, it may also help you further down the line. Google and Bing also provide a satellite mapping service which lets you check if a property was sold cheaply for a specific reason which could also be very useful to check out.
This is a question only you can answer. As we all know, getting the financials right is the most crucial part of any investment.
Research, research, research is key. Before you spend a penny, look at the property, the location, your target rental market and the rental desirability of the area.
You want your property to appeal to tenants, but you won’t want to spend thousands on high specification fixtures and fittings that tenants aren’t likely to pay a premium for.
We have a load of resources to help you make the most out of your property investments to maximise profit. There’s a top 7 ways to boost your property profits video here and there’s 24-tips to make you a better property investor here.
No matter whether you’re buying your first or tenth investment property, make sure all your calculations are present and correct so you can make sure that the financials stack up.
And never allow an estate agent to push up your original ceiling price! Stick to your guns.