Investing In Rental Property: How To Get Started
People will always need homes to live in.
This makes property investment a relatively safe bet.
It can lead to a lucrative addition to your investment portfolio.
Entering the property investment market is easier said than done. It’s not like opening a CFD investing platforms, invest some spare money in different products, and hope for the best.
Property investment can become a very active and stressful business if not run properly.
Before deciding whether property investing is for you, ask yourself:
- Do you want to manage the property yourself or hire an agency to do that
- What is the average rental yield in the area you want to buy
- Who are your desired tenants (short term, long term etc)
- Is the area up and coming
- The average house price for the area (in case you need to sell)
Below are some other things to consider:
Know your upfront and ongoing costs
There are many costs involved with owning a property.
- Solicitor fees
- Surveying expenses
- Daily running & tenant liaison costs
- Land tax and stamp duty
- Mortgage deposit
- Mortgage repayment
These costs can add up considerably, especially if you’re not prepared or struggle to rent out your place.
If you have any questions about the housing markets, visit 24 Housing – a resource that has an extensive library of articles for building, planning, designing, and buying a property.
Consider having a business partner to mitigate risk
Now that you understand the costs, decide whether to do it alone or partner up.
The clear benefit of investing in property alone is that you own 100% of the profits. But you also need to have the deposit (if you take out a mortgage).
By partnering up with someone, you will have less financial pressure, but your profits will be smaller too.
How to find a partner?
It can be an acquaintance or a friend, who is looking to broaden their portfolio,
You could also turn to social media and find groups dedicated to investors in your area.
Just make sure you meet the people you do business with, and sign the legal documents with a solicitor.
If social media is not your thing, you could approach real estate agents and ask them to hook you up with investors. They understand the market and work closely with investors.
Try to find a fixer-upper in an up-and-coming area
A fixer-upper is a property that will require repair, though it usually can be lived in or used as it is. They are popular with buyers who wish to raise the property’s potential value to get a return on their investment, or as a starter home for buyers on a budget.
Fixer-uppers are people or property investors who are looking for motivated sellers who are willing to sell properties at below-market prices. By buying below market value you can already make a great deal when you buy (and not just hope that you make a deal when you sell).
The best type of rental property is a renovation project in an up-and-coming area.
The UK property market is in a constant state of flux – even top agents struggle to predict where it will head next.
Understand your target tenant
When choosing the location and type of property you want to buy, think of who is your target tenant.
Is it a student? A professional couple? People on a low income? Tourists?
Would you ideally house people long-term or short-term?
Considering the demographic of an area and weighing it up against your “tenant expectation” may feel tedious. However, it’s the most effective method of ensuring you get the highest return out of your investment.
Thinking of your ideal tenant will make it easier for you to decide whether to invest in a studio apartment, 1-2 bed flat, or HMO – houses in multiple occupations. HMOs are usually designed for people with low incomes, where they share toilet, bathroom, or kitchen facilities with other tenants.
Build a strong rapport with your tenants, so they will look after your property better.
Know all your risks
The nature of investments in general means there are risks involved, and the rental property market is no different. Mitigating the risks calls for being prepared and understanding them – the following can help save you large losses:
- Large renovations can end up costing a lot of money
- The ongoing rent isn’t guaranteed – be prepared to fund quiet periods
- The wrong tenants can cause extensive damage and stress
- The property’s value may fall
The rental property market can be difficult to enter. Understanding all the costs, figuring out funding, choosing an ideal tenant, and investing at the right time will all help maximise your investments.
Although property investment has risks, there are even more benefits. Efficient and business-minded landlords stand to make a huge profit.
As a general rule of thumb, a rental yield of around 7% or higher tends to be considered a very good yield for a buy-to-let property.
To break it down, rental yield is the return made on property investment in terms of monthly rent charged compared to the value of the property/price paid. If you are making less than 5% you need to rethink your investment strategy.