Key things to look for when buying an investment property.
Are you thinking about investing in property? Read this article before buying anything to avoid common mistakes that could cost you money!
Investing in property can be highly lucrative. Generating income monthly from the asset and then further revenue from the capital growth of the asset value overall. Because the asset generates revenue each month, the asset, or property, will generate enough income to pay for itself in mortgage, taxes, and maintenance. So, really, the only investment that you as an investor need to make is for the equity deposit. Afterwards, the asset is self-funding, and you can keep the profit.
It is easy to see why people want to buy property to invest their savings. Rather than earning a few pounds per month in a savings account, you could make hundreds and have a tangible asset that increases in value over time.
But property investing is a long-term option. Even if you flip a property in refurbishment and sell it straight on, you will still have your money tied up for months, maybe even a year, so you must do your due diligence before buying a property for investment.
This article will share the key things to look for when buying a property for investment.
Identify a potential investment-
Spend some time learning and gaining experience in the area you want to invest in. Research and speaking to agents are vital. Without knowing about the properties and the local area, you will have no idea whether a property is a good deal or the location is a good one for buy to let. Compare properties for sale and let and see what moves quickly. What is the going rental rate for these properties, and what is the price to buy them. This experience and information gathering is the first port of call for any new property investor; otherwise, you might just buy the cheapest property you see, which could cost you dearly if you can't find a tenant.
Property condition-
Looking at the property and structure in depth is essential before buying anything. After all, you will not be living there; a tenant will, so it is unacceptable to think that a tenant will 'put up' with sub-standard living conditions. They won't, and nor should they have to. Consider the state of the property and ensure you know every job you may need to do. Get a quote for the works to be carried out and a timescale for them to be finished. The cost of the property, the work, and the monthly outgoings before a tenant can be found are all for you to find and must be calculated within your budget. It would also make sense to know in advance that you may have significant work to do in the next 5 years, as this will impact your overall investment if you have to pay for a new roof in the first few years of owning the property.
Yield-
Like the interest rate paid on your savings, the yield is the percentage rate of return your rental income generates against the property purchase price or value. Calculated by dividing the annual (predicted or actual) rental income by the property value and multiplied by 100 to get the percentage. So, for example, if a purchase price is £100,000 and the rental amount is £550 per month or £6600 per annum, the yield calculation would look like this.
£6600 / £100,000 * 100 = 6.6%
Even with the current Bank of England base rate as high as it is, a 6.6% return is pretty good on your investment.
Going through the initial due diligence process will help you understand the market and estimate the rental value of every property you're interested in so you can see if the investment yield stacks up. If unsure, ask the agent to tell you what price they would value the property for rent.
Future-
As property investment is a long-term option, looking at the future and how it will impact your target property makes sense. Are there plans to develop the local area, and will this be positive or negative for the occupants of this property? The property market will fluctuate constantly, but the overall trend is that the value of property increases, in theory. So, the potential capital growth is not necessarily easy to gauge, but it will likely increase over time. Identifying a property or area that looks to have growth potential for the future would be a wise move.
Investing in property is a wise move and, if done correctly, should provide you with long-term wealth. But buying the property is only the beginning. You need to find a tenant to live in the property and pay the monthly rent, and this is a complicated process.
It makes sense to hand over the management of your future wealth generation to experts so that you're not leaving yourself vulnerable to compliance issues or unruly tenants. Letting agents are experts at dealing with the day-to-day management of tenants and properties. You can simply invest and purchase the property and then collect the profit at the end of the month, leaving your letting agents to look after it for you.
To learn more about how to get started with property investment or how to hand over your investment to the experts to look after it for you, get in touch today.