Investment property – when to buy?

Is it worth it to buy investment property during a housing bubble?

Mortgage rates tend to be higher than usual, and the buy-to-rent sector is less attractive, but that doesn’t mean it’s a no-go option. Housing prices are at last coming down with rents going up, and slightly better mortgage deals mean investors are finally interested in placing their bets in investment property again.

Of course, property investment doesn’t come without risk, which is exacerbated by fluctuating market conditions. It’s essential to research the market – to know the risks and benefits. One place to start looking is at rental data for homes comparable to the one in question. This is a pretty solid rule of property investment; that is, never pay too much for the business.

Of course, investment advice is easy to give but not so easy to follow. A rule that comes up often is to look out for property that’s offered at 20 per cent discount, which is useful particularly for buyers who have the time or the means to renovate before selling on. There are two basic rules, however, that we see the most often: don’t buy earth that’s expensive and don’t pay too much for the business.

But exactly is meant by “the business”? The price-to-earning (P/E) ratio can represent a property’s basic value. Investors know that real estate prices undulate in the short term according to market conditions but in the long term, they’re driven by rental values. So, looking at the net rents of a property is a good way of gauging its value, even in an unstable market. Following the rule, it’s wise not to pay too much if the net rents are low.

It’s a good idea to keep tabs on the P/E ratio as it stands in relation to property surrounding it. Property investors’ general goal is to buy when the prices are low and sell when they’re high; but like so many things, that’s easier said than done. It involves a bit of guesswork to know what the returns will really be in the long run.

A good point of departure is to research property in London or in your home town to find good property investment deals at the moment.