Buy-to-let property market is increasingly becoming popular as an attractive investment option in the UK. Investing in a buy-to-let property can be rewarding as it allows you to earn extra income regularly as well as benefit from the price hike in the long-term. However, it is not as easy as it looks. There are many factors involved, so you will need to do adequate research and understand some key points before investing in a buy-to-let property.
1. What does buy-to-let property investment means?
Investing in a buy-to-let property means buying a property with an aim to rent it out to tenants or sell at a better price for a financial gain. Buying a property to live doesn’t count as an investment property, but you can benefit from rising prices over the years. Often, property investors buy a property at a cheap price, renovate it, and rent it or sell it for a higher profit.
2. Is purchasing a buy-to-let property a good idea?
Investing in a property is usually perceived as a safe way to earn passive income when compared to other investment products, such as shares and stocks. That is because the demand for rental properties are rising in the UK. Additionally, property price increases over time, but that isn’t guaranteed.
Besides the average price of the house, the average monthly rental amount has also surged over the past few years. Although renting a property can bring you a good return on investment, but there are some potential downsides that you need to pay attention to. This includes:
- The cost of maintaining the property when it’s empty
- Applicable tax and insurance costs
- Stress about finding good tenants
Investing in a property is not everyone’s cup of tea. It is a complex process and requires much more than just good finances in place, which can be arranged through bridging loans.
3. What are the advantages of buy-to-let property?
One of the most efficient ways to determine whether the property is a good investment is by measuring its potential gain. The gain is the return on the investment property. If you want to yield maximum return on your buy-to-let investment, it is crucial to choose the right location and the right type of property. The two major ways to make money through buy-to-let investment are:
1. Rental income that you receive from tenants every month
When you rent out your property, you will receive monthly rental payments. With this rental amount, you can pay any existing debt, such as bridging loan. The rental money may also help you carry out any repair work caused by the damaged due to wear and tear.
2. Rising property prices also known as capital appreciation
Buying an investment property means the value of the property will potentially rise over the years in line with national house price rises. If you decide to sell your home after 10 or 15 years, the value of the property could be much higher than what you have purchased for.
4. How to choose the right property type and location while purchasing a buy-to-let property?
Location and property type directly impacts the yield from your investment property. Before you finalise the location and property type, here are some important points to consider.
1. Is the property’s average market value affordable and are prices likely to hike?
You surely don’t want to end up buying a high-priced property only to realise there is no or little price rise. So, the property should not only be affordable, but you also need to know how prices are going to rise after several years.
2. What is the location best for? Commercial, residential or industrial property?
Specific location demands for specific properties. If you are investing in a residential property in an industrial area, then there are very less chance that you will find a decent-paying tenants, and vice versa. So, if you are planning to invest in a residential property, look for a location that has schools, parks, entertainment options, public transport and other amenities nearby.
3. What is the future of the location? Will it become more or less appealing to tenants over time?
Thinking about the future of the location is also an important consideration. If you are investing in a property in a location that shows no sign of progress in the coming years, then the prices are more likely to stay stagnant. On the contrary, if a location looks happening with upcoming construction sites, growing commercial shops, proximity to nearby schools and easy transport facilities, you are more likely to find a high-paying tenant and prices are more likely to rise.
5. How to buy a buy-to-let property?
You can either buy an investment property through a real estate agent or through property websites. In the recent years, property auctions are also popular amongst homeowners and property investors because there is a good chance of getting a bargain and the buying process is quick as well.
If you are buying through a real estate agent, make sure the agent has adequate experience in helping buyers purchase home faster. He should also have a strong market knowledge who can help you guide through the nuances of the locality you are interested in.
If you are buying through a property auction, it is important to have your finances ready before you attend the auction. That is because if you win the auction you will be required to pay a 10% deposit on the same day and the rest of the amount within 28 days. Arranging a bridging loan is an ideal way to complete auction property purchase quickly.
We hope we are able to give you some idea on what buy-to-let property investment is, what it could mean to you as an investor and how to invest in the right property. Buy-to-let investment is a still an effective way to start a passive income with no signs of slowing down in the near future.