Popular Misconceptions About Becoming A Property Investor

Summary

Becoming a real investor is a dream of plenty of people. So many of us hope to have money to invest in property while reaping a second income and potentially having assets to leave as an inheritance for loved ones. However, a heap of popular misconceptions stops countless people from making their dreams a reality. So with that in mind, this quick read aims to uncover the myths from the truth and could be the kick starter for you to become a property investor. Let’s dig in.

You need lots of money to invest

So, do you need a lot of money to invest? Yes, and no. Most people start small with a flat or small terraced house valued at around £80,000 or less. The minimum deposit for a buy-to-let mortgage is usually 25%, meaning you will likely need around £20,000. Certainly, it’s not pocket money, but it might be an amount you can save over time or perhaps could come from a moderate inheritance. And, considering it could set you on the path to financial wealth and a new career where you are your own boss, it’s not a mindblowing amount.

Capital growth is most important

Many people are only concerned with how the property will increase in value each year. But you should never consider that the most important thing, especially since you are not selling the property annually. You may check valuations and believe your property has risen in value by £10,000 over the last 12 months. But, you have not made £10,000, and you are not £10,000 richer yet! Imagine investing in a company that did not draw a profit for 15 to 25 years. I doubt there would be much interest.

You must ensure the property delivers you a steady passive income each month. Of course, there will be the odd month when an appliance needs replacing or a repair needs to be made, but in general, you should be generating a small but helpful income each month.

Property damage could ruin me

You’d be right to think that property damage is a risk factor in property investment. If you rent your home out to tenants that never pay you and there is extensive wilful damage on eviction, you could be looking at a disaster significant enough to ruin your investment dreams. However, most things in life can be mitigated against.

As long as you did your due diligence in sourcing, referencing your tenants, and insuring yourself, you can still be covered even if they burned the property to the ground. Many buy-to-let mortgage departments will sell you insurance and be your right-hand man when it comes to dealing with unpleasant scenarios such as evicting non-paying tenants, whatever the circumstances.

I’m at risk of repossession

Yes, you are is the simple answer. But if you are careful and take out insurance, you can help to avoid this scenario. If you are nervous about renting, some new investors prefer to flip properties, where the property is renovated and sold to a new buyer for a profit. Alternatively, you could try renting houses with multiple occupants (HMOs). This option maximises cash flow on a monthly basis and help you prevent financial difficulties.

Being a property investor is easy

We all dream of being on board a cruise ship while the money rolls in, but passive income is rarely entirely passive. You can certainly hand your property empire over in time, but until you do, there is hard work to be done!

Properties need to be carefully researched before buying. And rental properties must have regular maintenance certificates for things such as the gas boiler and electrical appliances, in addition to smoke and carbon monoxide detectors. Paperwork must be managed, taxes paid on profit and your tenants’ concerns managed promptly. And the more properties you have, the more this can be a full-time job.

Being a property investor is a great way to build wealth

There are several ways to build wealth. You might be a Warren Buffett-type with an eye for stock that is the perfect investment. However, property investment has always been a great way to amass wealth. By paying down a mortgage, you can purchase more properties.

Say you bought a property with a mortgage of £100,000. It has been reported that house price treble in 20 years. So, if after 20 years you can sell it for £300,000, you will still owe the bank the loan amount if you have only been paying the interest, which is typical in the BTL market. However, you have a clear profit of £200,000, which can be used as a deposit for several more properties helping you to create a BTL portfolio and amass considerable wealth.

Property investing brings freedom

If you are stuck in a 9 to 5 job you hate, then property investing can help you to become your own boss. However, you will need a portfolio of a certain size to cover the salary on which you are turning your back.

Investing in the current climate is risky

It’s true that the current economic climate is not great; however, with stocks and shares becoming riskier, the UK property market still offers the stability of steady returns. It’s estimated that while the UK needs around 350,000 new homes annually, only around 100,000 are built. This means that demand is always outstripping supply, and prices will continue to rise in this lucrative market.

Increasing mortgage rates will add costs

It’s true due to inflationary pressures post-pandemic and the war in Ukraine, the Bank of England has been forced to raise the base rate; thus, mortgages are becoming more expensive. However, the base rate has been so low for so long that minor increases will not change things significantly. Mortgage providers are still offering rates that are lower than they were 15 years ago.

It’s hard to sell a property and exit the market

If you want to cash in and leave the market for whatever reason, it is not hard to sell your property. Of course, you will have to inform your tenant and give them notice, but with demand always high for properties in the right area, there should be no issue selling your property. You will have to pay capital gains tax on your profit, but that is similar to any other business.