Guide to Residential Property Investment

Buying residential property can be a great way to diversify your investment portfolio. However, investing in residential properties is a more difficult task than buying stocks or bonds. It is an active process that requires your constant attention; if you fail to nurture the investment properly, it could cost you a lot of money.

When you first decide to invest in a residential investment property, there are a lot of important decisions that must be made if you wish to maximize the eventual return on your investment. First, you must figure out the type of residential property in which you want to invest. Houses tend to be the most expensive residential property investment, but they also have the potential for significant gains. Alternatively, a flat will usually require a much smaller capital investment, but the profits may be limited.

Ultimately, this decision will be determined by the amount of cash that you have available for the investment. However, many inexperienced investors fail to account for the many additional costs associated with their investment, which can lead to a significant cash flow problem if they have not set aside money for such inevitable expenditures.

Taxes are one thing that some new investors fail to consider. In addition to the upfront cost of the stamp duty, which can add up to more than five percent of the purchase price of the investment property, there are also ongoing property taxes and other fees that must be paid. If you fail to account for these items in the rent that you charge your tenants, your profits could decrease dramatically.

Of course, there are other important expenses that must be paid as well. If you borrowed money in order to buy the property, you will have to pay interest on the principal amount of the loan. You will also need insurance to protect your property against damage. In addition, you will be responsible for all repairs, such as when the roof starts to leak or when the air conditioning unit fails.

If you want avoid many of the hassles of residential property investment, there are property management companies that will handle many of these tasks for you. For instance, they will help you find tenants, collect their rent and prepare all the necessary paperwork. Although this does make property investment much easier, it does come with a significant price, which can be as much as 10 percent of the total rent collected from your tenants.

Residential property investment is not a get-rich-quick scheme, but it can prove to be a profitable investment to those investors who perform the necessary research and are diligent with the management of their property.