Three essential things every property investor needs to consider

Posted on Thursday, February 19, 2015

 

For many buy to let looks an attractive income investment in a time of low rates and stock market volatility. If you are considering investing in it's important that you’re ‘clued up’.

As an investment for those with enough to raise at least a 15-30% deposit buy-to-let is a strong option, particularly when you compare it to low savings rates and the stock market and its uncertainly. 

Despite this cheaper house prices, a move towards taking up a tenancy rather than purchasing, rising rents and improving mortgage deals have tempted investors once more.

If you are looking into beginning or expanding your buy to let portfolio, here are three essential things to consider.

1) Research the buy to let market

If you are new to buy to let, what do you know about the market? Do you know the risks, as well as the benefits? Investing in buy-to-let means tying up capital in a property that may fall in value.

Investing in buy to let involves committing tens of thousands of pounds to a property and mostly taking out a mortgage. When house prices rise this can mean a leveraged gains above your mortgage debt, but when they fall your deposit can get hit and the mortgage will stay the same regardless.

The more knowledge you have and research you do, the better the chance of your investment paying off in the long run.

2) Choose the right area for property investment

Promising does not mean most expensive or cheapest. Choose a place where people would like to live. For example:

• Does the area have a special appeal?

• Are you in a commuter belt?

• Does it have good transport?

• Where are the good schools for young families?

• Where do the students want to live?

Successfully match the kind of property you can afford with locations where people want to live.

3) Do the maths – returns and costs of owning a buy to let property

Sit down with a pen and paper and write down the cost of houses you are looking at and the rent you are likely to receive. Lenders typically want rent to cover 125% of the mortgage repayments and often demand 25% deposits. Remember rates are considerably above residential mortgage deals

Don't be over ambitious - go for rental yield and remember costs.

The days of double digit house price rises are gone, so invest for income not short-term capital growth.

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