The First Questions Are For You

If you are going to buy a property you are an investor. You are probably about to take out the biggest financial commitment of your life and so to some extent you are investing in your future.
Many might say they are only purchasing because they need a home but without a doubt they would not want it's value to be half the buying price when they come to sell.

You may be tempted to think about asking someone "Is now a good time to buy?" or "Where do you think would be the best place to purchase?". There are plenty of people around who think they know the answer and have ready answers but the truth is that the first questions should be to yourself.

That's because a professional in the real estate business would not be able to reply immediately to your questions. They would need to know a great deal about your personal circumstances before offering some sort of sensible guidance so it's better that you think about them now.

What is Your Situation?

Even if you believe property prices are going to move down this does not always mean you would will be better off to wait. This is a common error made by those renting who forget to take into account their current costs while deciding whether or not to buy.

Here is a simple example. A couple are renting for £1,500 per month in a property worth £250,000. They believe property prices will move down 10% over the next two years so they will wait until the value is £225,000. But in the meantime they will spend £36,000 on rent. A mortgage would have cost them about £12,000 over the same time period.

If they are right by renting they have lost £24,000 (£36,000 - £12,000) by renting and saved £25,000 by not buying. Overall they are better off by only £1,000 and all this time they have not been in their own home. If they are wrong their loss is substantially more.

How Risk Averse Are You?

Buying property has risks although these are only remembered every decade or so when the market moves down. Stocks and shares have risk, pension and investment funds the same, even banks to some degree as those who had accounts with Bearings remember only too well. Putting your money under the mattress is no sure solution - your home might be broken into and you would loose it all or a plumbing leak might turn your life's savings into paper mache.

So nowhere is perfect but in general if you want to minimise your risk put it in a savings account.
If you want your money to make you more cash than the interest rate they offer consider how much you are sensibily prepared to put at risk, because be it property or investments or stocks there is always a chance you will loose rather than gain.

Do Your Want to Invest in Property?

Once you have decided how much money you want to put at risk the next step is to consider if property is right for you. This is often an overlooked consideration as newspapers show the beaming faces of those from factory workers to bankers who claim to have made a fortune in real estate.
Don't be mislead, some were just outright lucky and some simply made an educated gamble.

You can read the magasine columns featuring those who proclaim "I just knew prices here would rise" or "It was so obvious this was the right place to invest." In many cases, however, these people were nervous and unsure they had done the right thing when they took the keys.

The morale is, property is an investment with risk and even educated strategies that look sensible do not always pay off so if someone suggests you should buy something because the area might get better, it is no guarantee that the price will rise.

Alternatively a non-descript house in an area with little going for it may make you far more money.

But it is not all "Blind leading the blind". There are ways to be more sure of what you are doing and that is what these pages are about. However the key factor to consider is whether you want to learn or whether you know another way to improve your lot.

Cash or no cash

There is often a great deal of competition between property investors and stock market dealers, each wanting to show that the market they work in is the best for making money.

If you have cash and you know and understand the currency markets, maybe you should put your investment there. If you have a good idea of the way shares rise and fall perhaps your funds would give you a better return on the stock market. Do not for one second believe making money in real estate is easy. As with stocks, currency exchange or anthing else you will need to be educated and you will need a little luck because there will always be events beyond your control that will change your fate for better or for worse.

But if you don't have cash the property market offers a strange doorway. It is not possible to go to a bank and say "I want to invest £250,000 in the stockmarket, can I borrow it please" but it is possible to do that with property, strange thought that is.

Property offers investors a chance to borrow sums unimaginable for other schemes which also means you can invest far more than if you were just doing to for cash itself. However, as always, the cost of calculating any return must include the interest rate that you need to pay on the borrowed sum.

Summary

Buying property is a big step and making money from it is not always as straight forward as the media might sometimes report. Generally speaking almost any real estate investment makes money in the long term. If you buy somewhere that you can rent out and the tenants pay off your mortgage after twenty years you will have a very nice nest egg. If you are hoping the flat you buy will go up one hundred percent in the next twelve months so you can quit your job - good luck - it does happen. Overall however the most sound piece of advice anyone can give you is to treat property as a ten year investment, not a get rich quick scheme.