Buying Investment Property
What you need to consider when buying an investment property Buying a property investment comes with many great benefits and is widely considered a smart way to secure your financial future.
However, as with any investment, numerous risks and challenges extend beyond the initial financial requirements.
Now is an ideal time if you’re thinking about earning additional income from rental properties or house flipping. With increased demand, you’re more likely to see positive returns on your property portfolio.
To start your journey towards investing in rental properties or earning appreciation, here are a few important factors to consider.
Location: Where to invest in property
For real estate investors looking to gain a steady flow of rental income, careful consideration of what prospective tenants are looking for is the first step in securing profitable buy-to-let investments.
Finding the right location in the best UK cities to invest in takes a fair amount of research. Still, property investors will benefit in many ways in the long run, from setting realistic rental prices to reselling for a sizeable profit.
Depending on the type and condition of your property, a significant chunk of your income will need to go towards maintenance and upkeep. Factoring this in your calculations from the very start will save you from unpleasant surprises down the line.
Analysing the market
When buying an investment property, analysing the local real estate market is key to understanding the financial viability of your property, how much potential income you can earn in the long-term and ensuring a high rental yield.
From working out how much to charge in rent payments to making an informed estimation of the costs of your investment property, here are some statistics to look for:
- Average selling prices and growth rate – Looking into the median sale prices for properties in the area will help you know if you’re paying too much, and if houses or apartments are more affordable than the other. Factoring in the growth rates annually and in the last 5 years will also give you an accurate reading of the local housing market’s long-term potential.
- Interest rates – Like with any investment, interest rates and investment property tax deductions can greatly affect property values, making it that much more expensive.
- Average rent – Analysing the average weekly household income and the average weekly rent in your desired neighbourhood will help you make informed decisions when calculating the right rental amount to charge.
- Vacancy rates – If the vacancy rates in the area are on the higher side, it could indicate that you will need to either spend more on your property to make it attractive or lower your expected rental amount to attract long-term tenants.
Raising finance for your property investment
Before you can watch the rental income roll in every month or be in a position to sell it for a hefty profit, you have to overcome the huge hurdle of that initial investment. But with a solid financial plan in place, investing in property in the UK is possible on any kind of budget. Here are a few tips for what to watch out for:
- The purchase price of your property is only one part of the equation. Make sure you have enough financial reserves for additional costs like landlord insurance.
- A primary residence mortgage differs notably from mortgages on your investment property, requiring a significantly higher down payment and higher credit score. Do your research to determine which type of mortgage works best for you, from the structure of mortgage payments to the mortgage interest rates.
- Be aware of all the taxes that apply to your investment property. While many rental property expenses are tax-deductible, certain fees like a higher stamp duty and capital gains tax will apply.
Hire a property manager Investing in rental properties is a great way to earn additional passive income, but becoming a landlord means making sure the property meets minimum requirements and living standards.
This requires a lot more effort than you may think, with hefty legal consequences if you don’t comply — so hiring a property manager may save you both time and money in the long run.
Property management services can be invaluable to busy investors, providing expert assistance on day-to-day admin and handling necessary tasks, including:
- Providing a rental appraisal with a thorough analysis of the market to ensure you get the best return on your investment
- Conducting tenant screening to secure high-quality tenants for your property
- Maintaining lease agreements, following up on lease renewals and collecting relevant documentation
- Collecting rent and following up on any arrears
- Conducting routine inspections to ensure your property is in top condition
- Sorting out maintenance requests promptly
- Tenant coordination on behalf of the landlord, so you can be as involved as you want Though the management fees will tap into your rental income, having expert knowledge and experience to rely on will go a long way in creating happy tenants, well-maintained property and a steady income to rely on.
What is an investment property?
Investment property is any real estate bought for financial gain, either through rental income if it is a buy-to-let investment or from the profit gained by selling the property at a higher price.
Buying an investment property is a great source of passive income and is a highly effective business plan for investors with a well-grounded financial strategy and some industry knowledge.
Should I invest in property?
As with any investment, there are many pros and cons to investing in property in the UK.
Careful research, market analysis and consulting experts on anything you’re unfamiliar with is a fantastic starting point for everyone, from first-time investors to those looking to expand their property portfolios even further.
What to look out for when buying an investment property
Whether you’re investing in a rental property or looking to sell for a profit, the right environment can add significant value.
A few factors to consider include:
- Safety and local crime rates – A neighbourhood with rising rates of vandalism, theft and/or petty crime will hurt property values no matter how much you invest in improving your property.
Researching crime statistics in the area at your local library or police station can help you make an informed decision.
- Local attractions and amenities – Proximity to schools, shops, eateries and public facilities like parks and public transport options are a surefire way to secure high-quality tenants and a profitable rental income.
- Aesthetic value – A property’s street appeal can drive further value. It can be achieved by either investing in properties located in attractive neighbourhoods or buying a fixer-upper to renovate it yourself.
How to buy a house for investment
If you’re looking to invest in property for the first time, getting the help of an experienced partner can be invaluable. Consulting experts in real estate, investment finance, property management and so on can also be hugely helpful, helping you make informed decisions and avoid costly mistakes.
Property is a long-term investment, and you won’t be rewarded for your efforts immediately. But with the right combination of in-depth research, a well-thought-out business strategy, and realistic goals, the chance of success is high.
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Author: Charlie Namalata (Different.com)