Investing in real estate is a smart move right now. The property market is booming and there is plenty of opportunity for capital growth, plus you can secure a regular income if you let your property out to tenants. But real estate investment is no different to any other business in that it needs to be carefully managed. You might come into the game with high hopes of building a substantial nest egg for retirement, but if you don’t pay attention to the financial aspects of your business, it could all go horribly wrong.
A large percentage of small businesses go bust in the first year. Maintaining cash flow is essential because without cash, you can’t service your debts and pay the bills. Making a profit is also important, although this might not happen straight away, so you need to ensure you are keeping on top of the finances at all times – and here’s how.
Secure the right funding
Investing in property will require some type of funding. Most people take out a mortgage in order to buy property, but if you are buying as an investment, you will need a specialist mortgage lender. Buy to let mortgages have different lending criteria and normally require a larger deposit. Make sure you shop around for the best deal and talk to an independent financial advisor if you are not familiar with the market.
Keep accurate records
It is absolutely essential that you keep accurate business records at all times. You will need to keep copies of invoices, bank statements, receipts and anything else related to your property investment business. You will also need to maintain accurate records of rental income received. Track everything on a spreadsheet or invest in specialist software to make life easier.
You won’t be able to avoid spending money, but it is a good idea to close eye on what you do spend. That way you can rein in spending when cash flow is tight or time expenditure to maximise your tax advantages.
Be tax savvy
All businesses are subject to taxation, although some go out of their way to avoid paying taxes. Unfortunately taxes are inevitable, but whilst you can’t get away with avoid taxes, you can be smart enough to avoid paying more than necessary. Make it your business to be familiar with the current property tax situation and don’t forget to keep a record of all your revenue expenses, as these can be used to offset any tax you owe at the end of the year.
Leave it to the experts
Dealing with admin, accounting and taxation is a time consuming process and if you would rather be out there buying and renovating properties or dealing with fractious tenants, it might be sensible to delegate the boring stuff to experts. Talk to the experts from Stax or ask business acquaintances for references, so you can get on with growing your real estate business.
Real estate investment is not for everyone, but if you love property and you have plenty of business acumen, why not give it a go?