Most of us want to make money, but few of us want to take big risks with our capital, and in recent times there have been some big ups and downs in the property market, especially in the UK and USA. The downturns can be quite severe with homeowners seeking to stop home repossession, and in some cases just giving up and handing the keys back to their lender. This is a warning sign for property investors!


Many people forget the basics about making money form property. Its not like buying shares, its not easy to buy and sell quickly, property is a relatively illiquid asset, there are also high transaction costs ranging from agent fees to local taxes. If you want to make money from property you need to have a long term strategy.


Firstly you need to look at the fundamentals for property valuations, these can be categorised into 2 areas; affordability and location.


Affordability is linked to the local economy and interest rates. The local economy defines personal incomes that will be available to support property rental and ownership. A quick check that can often be used is to ask “what are the local rents for the average house”, then look at the net return this gives on the value of a house, and finally compare this with the net interest for financing the purchase of a property. If the rents are close to the financing costs then the property market is well underpinned by local economy.


The location is a key factor for the future. For example, take the city of London. There are 100s of thousands of jobs in the city that people commute to. The further away you are the more it costs in time and transport to get to work, thus for many it is more desirable live near the city centre, which in turn pushes up local prices. But population is also growing, new properties can be build outside the city be very few within, what this means is that there will be enhanced demand for city centre properties in the future – thus it’s a good location for long term investment.


No you have found you location and you want to invest, how do you do this? One way is to take advantage of market changes. For example people who want to exit the property market with a sell to rent back scheme that enables them to become a tenant in their former home. Yet other options may include those seeking a quick house sale, in return for selling at a discount to market values.


With careful analysis and a long term strategy it is possible for a private investor to build up a large portfolio of buy-to-let properties that not only have a profitable rental income but also lock them in to future capital gains. But remember, affordability and location, the two most important dynamics for property investment.