5 Tips for First Time Investors
If you haven't invested before, it can be a daunting prospect and the need to do it right the first time is often overwhelming. You don't want to lose money after all! So we've put together our top 5 tips for first-time investors, to help get you off to a good start.
1. Work backwards and set your goal
What are your financial goals in relation to property investment? You need to have a think about this first and ask yourself the hard questions:
How much do I want to earn from property investment?
Do I want instant capital returns or income over a period of time?
Do I want to manage these investments myself or outsource?
Can I afford to risk this amount of capital?
Following these questions will enable you to set expectations that are in line with your required annual profits and return on investments (ROI) per property in order to meet your financial goals.
2. Do your homework
Research is an integral part of making any investment so you need to make sure you don't do any investing until you've done your research first. The main things you need to think about are where to invest, what type of property to invest in and whether there will be any tax implications.
Make sure you explore different strategies. Although the most popular investments are residential and student properties, there are other options, such as HMOs (Houses of Multiple Occupancy). These investments see you renting to multiple groups of tenants in one building. While they do yield an increased cash flow, they can be more costly and time-consuming.
You must also adhere to certain rules and follow the legal requirements. Make sure you are up to date with and understand tenancy laws. Read our blog on 7 Essential Safety Tips for Landlords, which is a great starting point.
We've already said it above, but do make sure you have thought this through on a personal level. Ask yourself, is it the right time to invest in property? Do you have enough money to do so? It's also necessary that you fully assess your finances before you begin your journey.
Finally, make sure you are aware of the risks involved with investing. A crucial risk to remember is that your property could decrease in value depending on the state of the property market. Make sure you look extensively into the property market predictions to help avoid investing at the wrong time.
3. Reach out to property experts for guidance and advice
Alongside doing your homework, don't forget to reach out to those who know their stuff. If you want some advice on investment properties, get it straight from experts who are already in the property game.
At Normette Homes, we are always happy to offer advice and help to first-time investors. We offer a free service where we provide confidential and objective audits of your portfolio's performance if you have one. If you don't, we can still chat with you about getting started.
We pride ourselves on continuously learning, meaning you get the very best advice every time. We have worked hard to forge reliable relationships with professionals and are sure to give you our honest opinion.
4. Make sure you understand the difference between ROI, Yield and Gross Income
When investing in property, many deals will be presented to you based on either gross income or yield. Both seem attractive on paper, however, neither gives you a true picture on the cost associated with investing large sums of money.
Here at Normette, we mainly utilise the rate of ROI as a quick indicator of whether a property could be worth exploring further. The higher the ROI, the better!
A quick guide:
ROI % = (Income - Cost per annum) / Investment
Yield % = Property value / Rent
Gross Income = Total amount of rent generated
5. DON'T think you can't invest
Be confident in your decision to enter the industry. If you are hesitant or unsure, you will find it more difficult. Mindset is everything! Property investment is a great way to ensure you reach your financial goals.
If you haven't got much capital, we recommend that you research 'Rent to Rent' strategies or teaming up with other investors.
As investors at Normette, we like to assess every opportunity as part of the “infinite game”, a concept first coined by James Carse. We adopt an “infinite mindset” towards our investments, with the intentions to provide wealth for generations to come. If you have a similar mindset, then property investment might be for you too.
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Normette Homes specialise in property investment and tenant sourcing.