Six reasons you will never make enough income through property investment
Are you a perfectionist looking to invest in the property market? Can you maintain control of your spending on renovations? Are looking to maximise your income or create a dream property? These are just some of the factors which you need to take into consideration when looking to create an income stream from your property investments.
It may sound a little bizarre to suggest you will never make enough income through your property investments because many people do. However, there are a number of issues which you need to be aware of.
Don’t treat your investment property like your home
Always remember that you are not creating a dream home you are building a portfolio of property investments to create a long-term income stream. There is no point investing enormous amounts of money installing the latest gadgets, following the latest kitchen trends and creating something of a palace. The fact is that tenants will not treat your property as they would their own, your property will suffer from wear and tear, things will need to be replaced and you should look at durable as opposed to luxury.
Be realistic with your calculations
You need to be open-minded with regards to specific areas and specific markets which you invest in. Do not forget that the property market goes far beyond your local comfort zone and there may be better rental yields available further afield. No matter how detailed your calculations are you do need to maintain some “headroom” for unforeseen costs which can hit you hard. In general, rental yields in excess of 7% are seen as “comfortable” while rental yields below this figure offer little room for error.
Losing your bottle
The investment arena is littered with investors who have done their due diligence, waited a long time for their perfect investment yet for some reason they lose their confidence at the last minute. While you will still need to be careful, look ahead and take into account any potential issues in years to come, if you have done your due diligence and everything is fine then what is stopping you? Far too many investors are overcautious and while it is dangerous to be overconfident it can be just as costly to be too cautious. If an investment ticks all the boxes then what is stopping you?
Controlling your refurbishment budget
As we touched on above, there is no point installing the latest gadgets and the latest fashions in your property if this diminishes the long-term return. The more detailed research you do into the cost of refurbishing a property to a good standard the more realistic your budget should be and hopefully avoid any costly shocks in the future. The vast majority of relatively new property investors will likely go over their budget and while not always the end of the world it will reduce your return. Work out a budget, compare this with the potential rental income and stick to your plan.
Don’t underestimate maintenance costs
To the inexperienced property investor it is simply a case of offsetting the cost of your finance against the rental income and pocketing the difference for your everyday living. Unfortunately, things are not that simple and there will be an array of different costs as a landlord which includes insurance, rates and legal costs all of which will come off your bottom-line profit. You should be fully aware of what you are letting yourself in for, what you may have to spend and whether indeed after taking this into account the property in question is viable.
Refusing to spread the risk
At any one point in time an investment could look extremely attractive yet who knows what the future holds. There may be issues with the local economy, there may be issues with the employment market or crime can sometimes taint the reputation of an area. Putting all of your eggs into one basket is a potentially high risk/high reward strategy which can create a significant return in the future but it could also go wrong. Hands off investment opportunities allow you to pick and choose an array of different investments for a relatively small amount of money thereby spreading the risk and handing over the day-to-day management to those with hands-on experience.