Investing in property: five tips for a successful start

Investing in property: five tips for a successful start

With the stock market constantly fluctuating, attention is switching back to investing in property. Putting money into property may be a fine investment, with regular return and a reliable rise in value. Provided, of course, you don’t start off on the wrong footing. The tips below will set you on the right track.

1. Calculate your profit in advance
According to a recent study, one in four Belgians think that property delivers a return of 5%. One in six even expect a return of 8% or more. Unfortunately that’s completely unrealistic. The real rate of return is usually around 3%.

Some estate agents reflect these far higher return figures, however. This is often the gross rate of return. That doesn’t really help you. What you want to know is what you will end up with as net return. So you will have to start calculating.

To calculate net return, you must first deduct from the expected rent yield your possible annual expenses, such as:
· Costs of maintenance and refurbishment
· Insurance and property tax
· Vacancy between two tenants
· Any mortgage payments

The net amount should be divided by the total investment and multiplied by 100. This is your net return. For example, let us assume that you have invested 220,000 euros to purchase an apartment (including the initial notary fees, redecorating and other costs). You expect an annual rent yield of 10,200 euros and annual costs of 3,000 euros. Your net rate of return is 3.27%, because (10,200-3,000)/220,000×100=3.27.

2. Keep savings aside
Investing in property requires a substantial sum of money. Fortunately you don’t have to invest everything yourself. With the current low interest rates, a mortgage loan may of interest for part of the investment.

But you may perhaps have reached the point where you have saved enough to buy your first investment without a loan. We nevertheless advise you not to invest all your savings in property. You never know whether you might need money urgently in the future. Unlike an investment in shares, for example, you cannot just withdraw money from your investment at short notice. So it’s best to keep a little nest egg.

You should also bear in mind that you will occasionally have to have work carried out on your property investment, even if you invest in a new-build. If you haven’t kept a budget aside for this, the value of your property will quickly drop.

3. Investing in property = investing in a good location
Location is a crucially important criterion if you’re on the look-out for a property investment, far more important that the condition or potential of the property. Urban centres and municipalities around a city are more attractive to tenants than a beautiful apparent that’s far away from everything. The most important location criteria for tenants are:

· Parking
· Closeness of shops and leisure options
· Closeness of connecting roads or public transport
· Specifically for homes for families: closeness of schools

Then consider how attractive the immediate surroundings are and what investments in infrastructure are being made. Or look into how the district is changing demographically. An area on the up can deliver fine added value. Consider, for example, the great added value recently achieved in the area of Eilandje in Antwerp, or what can be expected in the near future in the up-and-coming Vaartkom in Leuven.

4. Don’t forget the law
Tenants are particularly well protected in Belgium. As a future landlord, you should therefore keep abreast of tenancy laws and other legal matters, so that you know what you have to do if you ever have to deal with default on payment, damage to rental property or unlet property. Never put your trust in the standard contracts that you can download everywhere on the internet. Instead call in a professional to draw up your tenancy documents or at least to read through them.

5. Investing in property = investing time
If you think money will just come flowing in, you’re in for an unpleasant surprise. Investing in property is often described as passive income, but it demands active input.

Looking for the best location and a suitable property, estimating your return, screening tenants, looking for affordable refurbishment and rolling up your own sleeves, consulting legal experts … It all takes time. Against that is the fact that any investment on your part delivers tangible results in your wallet and that you’re your own boss. Nothing can beat that feeling!