How to get started with property investing

We have always been told that one of the best investments that can be made is into bricks and mortar, so it is no surprise that many people want to get into property investment these days. There are many successful investors out there, but if this is your first foray into the property investment world then it can seem difficult to know where to start.

Property investment will involve significant amounts of cash or borrowing, so it is understandable that it can seem daunting to dip your toe into the property market. Here, we tackle some of the most common questions about property investment to help you get started and make that first leap.

To explain further, Mark Burns, Managing Director of Pure Investor shares his insights into how to get started with property investing.

Being a landlord

Many investors take the time to think about the financial arrangements of owning a property and think purely about the profits that they can make. However, it is important to remember that between buying a property and selling it, you will be required to be a landlord. Is that something that you are cut out for?

You will need to think about how you will find, manage and retain good tenants, as well as looking after the property while they live in it. Are you handy enough to fix a leaky tap, redecorate the living room or repair the fence or will you need to pay someone else to do this? It is therefore a good idea to factor in the cost of trades people and materials to make sure that your property can always be kept in good order.

It is also wise to be prepared for the headaches involved in trying to evict tenants, chasing unpaid rent and writing fair and comprehensive rental agreements.

If this doesn’t sound like your skillset, then there are some fantastic letting agents out there who can help you out with all of this, but it will be another cost that you will need to take into account.

Mortgages

Buy to let properties require a different type of mortgage, and these will often require a bigger deposit than buying a property to live in. This increased loan to value (LTV) will help you to secure more favourable rates over longer periods, making your monthly rental yield more profitable, so now is the time to start saving. Make sure that you shop around for the best mortgage deal as there are now many different products out there with varying fees attached to them.

Obviously buying with cash puts you in a strong position, as your rental income will all be profit in your pocket. However, many investors will still be reliant on mortgages, so it is important to make sure that all of your monthly costs are matched or beaten by the rent that you bring in.

As interest rates are likely to change over the next few years, you should prepare yourself for changes in mortgage rates, and potentially be ready to increase the rent for your tenants in line with this. It is generally recommended that your rental income should cover your mortgage interest payments by 125% to 145% in order to make mortgage providers feel more comfortable lending to you.

It is important to remember that you will still need to pay your mortgage even if your property is empty, so you should ensure that you have the cash to see you through a few months where there is no income.

Location, location, location

Buying any property requires a close look at the location, although rental properties will give you different considerations. It is important to look at the rental market in the area you are focused on to see if it is thriving or not. A lot of empty properties, or properties which seem to be advertising for a long time should act as a red flag.

The type of property that you buy should also be governed by the area, as places with good schools and open spaces will be more popular with families and will require homes that accommodate them. Conversely, city centre living attracts young professionals who are more likely to rent smaller houses or apartments.

Think about the facilities that are near your property which could act as a draw or extra selling points. This might include shops, transport links and big employers and will maximise the number of potential tenants that your property will appeal to.

Taxes

We know that death and taxes are the only certainty in life and being a property investor could leave you liable for more taxation. You will be subject to capital gains tax when you come to sell the property, and any monthly profit that you make will impact on the income tax that you pay, potentially pushing you into higher tax bands. If you buy the property through a business, you will also need to think about whether it is subject to VAT.

Buying the property

Try to make sure that you view a number of different properties, as you should be buying this purely with your head and not your heart. Arrange proper surveys to assess the condition of your property will help you to determine whether it is likely to be a good investment or not, and any issues could be used to negotiate on the purchase price if you feel that you are in a position to overcome them.

You can choose from a Royal Institution of Chartered Surveyors (RICS) Home Survey Level 1 is the most basic survey that you can use, going up to a more comprehensive Residential Property Surveyors Association Building Survey. You can also arrange for a specific RPSA Buy To Let Survey.

Property investment can provide a great monthly income as well as a much larger lump sum when you come to sell, but it is important to remember that any type of investment comes with its own risks. By taking the time to research and prepare properly will mean you are more likely to be successful when you do decide to take the plunge.