How to Successfully Invest in Buy-to-Let Property
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Property investment is one of the most lucrative ways to make a living, as long as you do it right. When investing, deciding on the type of property you’re going to purchase is a significant factor, as your selection may result in success or failure.
To guarantee the success of your investment, you should consider buy-to-let property, which is one of the most common and lucrative property types you will come across. Buy-to-let offers an array of benefits which will either boost your current portfolio or enable you to start a successful career in the real estate sector.
If you’re serious about investing, you should take a look at the following guide which will provide you with everything you need to know about investing in buy to let property.
What is a buy to let property?
Investing in a buy to let property basically means to purchase real estate with the intention of letting it out to tenants. This will enable you to receive generous income in the form of rental returns as well as the potential for capital appreciation. The latter will come in handy in the future as this will boost the value of your property, allowing you to up the rent or even sell your property for more than the original purchase price.
What real estate expenses should you expect?
As you can see, there are plenty of benefits associated with investing in buy to let. However, like any investment, there are always some downsides that you need to consider. To start with, you need to take into consideration the 2016 ruling regarding additional properties, which requires investors to payout at least 3% stamp duty tax on real estate worth up to £125,000. If you plan on buying a property for a more substantial sum, then you can expect interest of up to 13%, although this is only applied on a buy to let property worth more than £925,001
You also need to consider how you plan to finance your buy to let investment. You may be lucky enough to have significant savings which you can use to fund the purchase. If not, you could opt for a buy to let mortgage, although you are only eligible for this if you already own one or more homes, have a good credit rating, and earn a salary over £25,000. These are the standard rules, but all mortgage lenders have their own terms you must adhere to. For example, the majority will place an age limit of 70, which is the time stamp for mortgage payments. You may also struggle to obtain a buy to let mortgage if you’re planning to invest in off-plan property, as lenders usually only agree to borrow a sum for up to six months, and off-plan construction usually takes much longer than that.
If you are approved for a buy to let mortgage, you should be aware of the additional interest you will face in comparison to a typical mortgage. You will also have to provide a minimum deposit of 25% of your chosen property’s purchase price. The amount of this deposit can reach up to 40% depending on the mortgage provider you choose.
Which type of property should you choose?
When investing in property, you need to consider the type of real estate you wish to rent out. One option could be purchasing refurbished real estate, which usually means a period property that has been updated before being rented out. While this may be attractive to tenants, it could actually set you back significantly, as the renovation costs may be high. A dated property may also face complications in terms of maintenance, as this type of real estate is much more demanding and can face safety hazards such as mould or asbestos damage, which again will be expensive.
One of the most common buy to let investments is a new build, which is a contemporary property that has been built within two years and fitted with up to date amenities and furnishings. This is an attractive prospect for investors, enabling a significant amount of tenant demand as the tenant will be the first to live there. This is similar to an off-plan investment, although this can actually be seen as a more lucrative opportunity as it can be purchased while under construction, meaning the property price will be at a below-market rate.
Where are the best buy to let hotspots?
Location is a crucial factor when investing in property, as some areas are more lucrative than others. One mistake investors tend to make is investing in cities like London, which appear to have mass appeal. However, properties in the capital are generally overpriced and do not provide generous returns. Instead of wasting your money, you should take a look at areas with the highest rental yields, which are usually over 8%. The rental yield is calculated by estimating expected rental income and dividing it by the average property price in the area. This will help you determine your returns before you go ahead and invest.
In order to find high rental yields, you should do your research to seek out the top buy to let hotspots. According to a buy to let guide from property experts RW Invest, cities in the North of England like Liverpool, Manchester and Leeds present the most potential. Liverpool’s city centre, in particular, is home to the best rental yields in the country and is becoming a popular area for young professionals who prefer to live near their workplace and the abundance of leisure activities in the L1 area.
Northern cities boast some of the UK’s highest yields, such as in Liverpool where you can find the highest rental yields of up to 14.99 per cent in the L6 postcode which is near the famous Anfield stadium. Another popular region is the North East, with both Sunderland and Middlesborough ranking amongst the top five rental yields in the UK. Sunderland stands out as an excellent prospect for investors due to its cultural and economic status that has resulted in an increased population and massive job growth, which is great news for investors.