Property investment can be an exciting and profitable venture but like with any investment, it doesn’t come without its challenges.
Before you take the plunge and invest in property, it’s important to do your research and ensure you’re well-informed about how to achieve the best return on your investment.
In this article, our team of property investment specialists offer their top tips when it comes to property investment for beginners.
Is investing in rental property a good move?
Despite the unsettled economy, buy-to-let properties are still one of the most reliable types of investment you can make.
House prices have been steadily increasing in the UK for the past decade and are still rising at a rate of 11 per cent every year despite the country’s troubled economy.
As well as rising property prices, the UK is also facing a chronic housing shortage which has increased the demand for rental properties and pushed up the price of rent.
Buy-to-let investors receive a rental income from their property in the short term and profit from capital growth in the long term.
Of course, like any investment, property investment is not foolproof and beginners should do their homework and seek advice from an expert if they want to achieve the best return on their investment.
How to invest in rental property
If you’re sold on the benefits of owning a buy-to-let property but don’t know how to invest in rental property as a beginner, then read on.
Decide if you’re going to use an investment property service
A good starting point is to decide how much involvement you wish to have.
Do you want to be a passive investor, or do you have the knowledge and time required to commit to running the buy-to-let yourself?
If you require any help, then our team here at Mistoria Group offers a variety of property investment services to investors throughout the North West including Liverpool, Manchester, Bolton, and Salford.
Whether you simply require help sourcing the right property, or a fully managed service, a property investment service can make property investment for beginners simple and hassle-free.
Gather a deposit
Beginners should bear in mind that the deposit on a buy-to-let mortgage is usually more than it would be for a standard mortgage.
According to Barclays Bank, a deposit for a buy-to-let property is usually about 25 per cent of the property’s value. It notes that this may vary, depending on your circumstances.
Factors considered before a decision include whether you already own any other buy-to-let properties and how much money you owe.
Get a mortgage in principle
Buy-to-let mortgages can be a little more difficult to secure than standard ones.
You will find that most buy-to-let mortgages are interest-only, which means you are required to pay just the interest on the mortgage each month, not loan repayments.
Once the mortgage comes to an end, you are then required to either pay off the loan in full or re-mortgage.
The standard criteria for getting a buy-to-let mortgage include:
- A good credit history
- A deposit of at least 25 per cent of the property’s value
- You will be under the lender’s age limit when the mortgage ends
- Your earnings must be enough to cover the investment
- Some lenders require you to already be a homeowner yourself
Find a suitable property
Once you’ve got your buy-to-let agreement in principle it’s time to start searching for the right investment property.
Choosing the right property in the right location can mean the difference between your new investment venture bombing or being very lucrative.
Think about the type of tenant you plan to market your property to. Bear in mind that turning a rental property into a house in multiple occupation (HMO) and renting out individual rooms rather than letting the whole property may be more profitable.
Once you know the type of tenant you wish to attract, consider where the most suitable areas for your property are. Buying in a good area allows you to charge more and avoid your property sitting empty for long periods. Expert knowledge of the local area is helpful at this point, if you don’t have this then you will benefit from speaking to a property investment company that knows the area inside out.
Here at Mistoria Group, we help investors throughout the North West source high-yield properties in popular towns and cities including Bolton, Manchester, Liverpool, and Salford.
We also help many experienced buy-to-let investors in the North West to downsize their portfolios, allowing us to provide first-time investors with access to high-yield properties as soon as they become available.
What is the average ROI on rental property?
Property investors often receive both short-term and long-term returns on their investments.
A property’s rental yield is the amount of profit that is made from its rental income. This is worked out by dividing the amount of rental income received each year by the cost of the property and multiplying by 100.
Natwest Bank suggests that landlords should aim for a rental yield of between six and eight per cent. In general, rental yields tend to be much lower in areas like London and the South West where property prices are high.
According to the Track Capital website, the average UK rental yield in the UK currently stands at 3.63 per cent, with rental yields looking very low throughout London and significantly higher in the North of England including cities like Manchester and Liverpool.
The other way that landlords profit from buy-to-lets is through capital growth. Capital growth is the amount by which the property increases in value whilst the landlord owns it. Capital growth is worked out as a percentage by subtracting the purchase price from its current value, dividing the increase by the purchase price, and then multiplying the answer by 100.
Not every property investment will achieve capital growth and the amount gained can vary significantly depending on a variety of factors. However, over the past 10 years, property prices have been steadily rising and many landlords have made significant returns on their investments through capital growth.
An article published on the Hamptons website found that based on an average nine-year ownership period, the average landlord in Great Britain made a total net profit of £76,820 in 2020, representing a 39 per cent return on their initial investment.
For further help or advice about how to invest in property give our team of property investment specialists here at the Mistoria Group a call on 0800 500 3015.