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Getting an idea of a realistic budget is the first step to finding an ideal property. Typically, a buy-to-let deposit will be around 25% of the total purchase price. Therefore, if the property costs £100,000, the investor must have a £25,000 deposit. Furthermore, investors should keep in mind that they will need to factor in the stamp duty, legal fees, and any renovations or repairs that may be needed. Investors should certainly approach their budget with caution, as financial and life circumstances change.
If the investor is looking to make their first investment property purchase, they should consider looking in high-yielding areas where a property is available at a lower cost. Average property prices in London are over £550,000, whereas in Northern cities such as Manchester, average prices are around £250,000. This will help the investor gain experience in owning and managing their investment, while significantly lowering the risk.
Investors must set their goals to achieve a successful investment. Are they looking to generate a passive income stream, high rental income, or long-term capital growth? To set goals the investor must look at what can be achieved within their budget, and which aligns with their long-term vision for their investment. This can depend on the investor’s personal circumstances or desire to build an investment portfolio.
If an investor is looking to build a portfolio, they may want to generate high yields to gain that immediate return on investment to fund their next deposit. As their portfolio is growing, they will simultaneously be building equity in each property, meaning once they are ready to sell, they will see significant returns. If an investor is looking to benefit from a single property, they may prefer to achieve high capital appreciation, where a single property raises in value creating a strong return on investment.
Property investment is a far more stable investment type compared to stocks, cryptocurrency, or business investment. This is because the property market in the UK is strong and secure while having maintained long periods of growth. However, there is still an element of risk involved, so when an investor is looking to secure a property they must understand their own financial situation, the property market as a whole and what their goals are to fully understand the risks. If an investor cannot afford to pay for a vacant property, it may not be the best type of investment for them. Furthermore, if they cannot live without the liquid capital which will be used during the purchasing process, it could be considered an especially high-risk purchase.
Additionally, if the investor is financially stable but is in unstable employment, they may invest to gain a secondary income stream. However, if they stretch their budget to secure their property any changes to personal circumstances may leave them unable to pay to maintain the property or repayments. To combat this the investor may want to secure a property well within their budget, giving them the ability to rectify any issues.
If an investor is not sure where to start, it is a good idea to get professional advice from a property investment specialist, such as CityRise. When trying to secure an investment property, there are many factors to consider and an expert in the field will be able to guide investors towards a successful investment. Specialists may be able to identify investment hotspots and break down how investors can achieve their investment goals. Furthermore, they can provide thorough due diligence to help avoid any issues further down the line.
Additionally, an investment agency may be able to help investors avoid issues during the purchasing process, helping to avoid any hiccups along the way. This can include mortgage advice, legal costs, and the path to completion. In a recent survey conducted by uSwitch, 68% of existing landlords are looking to use an investment consultant to obtain their next property.
Finding a Location
The location of the property is one of the most important factors in determining the success of the investment. Therefore, the investor should look to obtain a property in an investment hotspot. This is an area where property prices are fair and rental demand is high. This will help the investor achieve high rental income, strong capital appreciation and financial security. Achieving high rental income and capital appreciation is usually down to a supply-demand imbalance, in which more residents are looking for accommodation than is available on the market.
Before buying any property, it is important to do research and understand the local market. This includes looking at growth in the area, for example, regeneration projects and local employers. To identify a strong location for investment investors must understand what residents in the area are looking for and how competitive the market is.
When finding a property, investors must decide on what type of property they would like to buy. Doing research to find the type of property that best suits a buyer’s investment goals. Apartments can offer a better value for money in popular BTL locations, such as city centres. Furthermore, they may offer higher EPC ratings, which can help benefit both landlords and tenants. In areas with high demand, rental prices can be incredibly high for apartments. However, investors buying off-plan may be able to secure property below market value.
Semi-detached and detached houses can be amongst the most expensive properties on the market and while high rental value can be achieved, the demand may be low. Additionally, securing a semi-detached or detached property may mean compromising on location, as these property types may not be available in city centre locations at a reasonable price. Furthermore, terraced houses have been popular with investors looking to invest in HMOs, however, in recent years new restrictions have been implemented to limit the number of HMOs in an area, making it a far riskier investment.
Property investment is a long-term strategy and will not provide immediate returns. While there are a lot of things to prepare for, using a property management service can help speed up the process. They will be able to secure quality tenants, furnish the property and handle all maintenance including snagging. However, even then the investor must be patient and wait to see a return on their investment.
Once the landlord begins to benefit from rental income, they will see a short-term return on investment. Then over time, they will build equity in the property, which will then allow them eventually to outright own the property. If the property is in an area where property prices are growing, landlords can also benefit from capital appreciation, meaning the value of their asset has risen.
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