Wednesday, 10th September 2008

The best investment property

Written by George Traganidas Topics: Property Investing

Investment Property

I have been looking for a long time for a way to evaluate if a property is a good one for investment or not. There are so many properties on the market, but which one is going to make me the most money? That is the question.

I would like to make a distinction here before I go ahead. This article is about properties for investment. It is not about your dream house/flat. You should keep this in your mind all the time. Based on this you should throw all your emotions out of the window. This is all about the numbers. We are looking for a property to make money and not one that looks nice. Therefore, we will at the numbers and not if the living room is cosy.

A lot of people have been asking me if they should buy flats or houses, if they should buy 1-bed or 2-bed, if they should buy in London or in another town. I do not really care about this. First of all I would say, buy in an area that you know. Do you know about an area in London? Buy there. Do you know about a town in Scotland? Buy there. As for how many bedrooms, I would say look at the numbers. If the numbers are good then buy it.

First things first, you need to look if you can cash flow the property. Will you make money at the end of the month; will you make money at the end of the year? You might buy a property that will have a small negative every month, but at the end of the year when you release equity you are ending up in a positive. That is ok, as long as you can cover the small monthly negative cash flow.

What you need to consider is the amount you will use for a deposit. You can get 95% or 100% from a mortgage lender, but they are going to charge you a very high interest rate. Does your monthly income cover it or come very near it? If no, then you need to put down some money for the deposit. Most experienced investors that I have spoken to recommend getting an 85% LTV mortgage and then put down the other 15% which could come from your pocket or from other sources.

On the next post I will continue this discussion about the incomes and expenses you are to use in your calculations for the monthly cash flow. I will also discuss some guidelines on how to release equity each year so you can get some extra income from there.

Follow the Practical Way,
George

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