Investing in property is great fun, and you can make a lot of money from it too. But it’s not all fun and games, there are plenty of boring things to take care of.
As a landlord, you’re going to be required to deal with tenants, and you don’t know how those tenants are liable to act once they’re living in your property. That’s why you need insurance; it’s not worth trying to be a successful landlord without it. You can’t just use a conventional homeowner policy though.
You need to have a landlord insurance policy that is tailored to the specific needs of landlords. If you do use an ordinary home insurance policy, the insurance company probably won’t pay out when it comes to making a claim. So, there really is no point in trying to go for a cheaper homeowner policy.
Investing in property makes you a landlord, and being a landlord is not a hobby, it’s a job. Like all other jobs out there, you’ll have to pay tax on the money you make. Even if you’re a one-man operation, you’ll still have to pay tax on your income. You’ll have to set up as a sole trader and declare all the money you make to the tax office.
There’s no way of getting around this, even though plenty of landlords set up elaborate schemes to trick the authorities. These schemes never work. Remember, tax evasion is a very serious crime, and you won’t get away with it with a warning. You could spend years in prison. You could take out a tax loan with Reliance to make the payments more manageable and easy to track though.
There are obviously lots of ways in which you can finance your first property investment, but the one that a lot of first-time investors go for is a mortgage. You can’t get an ordinary mortgage though, you’ll need a specific buy-to-let mortgage to cover both you and the lender. Investing in property is risky for everyone involved.
It’s obviously a much better option to invest with your own cash because buy-to-let mortgages can be quite expensive and difficult to attain. Lenders will only give you one if you have a good credit score and already own your own private home. And to cover the risks, the premiums will be bigger.
If you’re going to make any money from your property investment, you need to fully understand how yield works. Your yield is the percentage of your investment you get back each year in the form of rent. It might sound a little confusing if you’re not the kind of person who’s good with numbers, but it’s not too difficult to understand.
It’s best to use an example to understand it in simpler terms. First you need to calculate how much you spent on the property – this includes the buying price, and any renovation costs you incurred. So, if you spent $250,000 on the property, your field should be around 5%. This means you should be making about $12,500 in rental income per year.
If you take care of all of these issues, you’ll be on the path to property investment success.