Why Invest in Property?
Approximately 90% of the top 500 rich list have made all or part of their fortunes through property investments in some form or another.
Property has always been and, continues to be, a strong yet stable investment with a consistent upwards growth trend year upon year and doubling in value very ten years. It can also provide a passive income with considerably higher returns than having your money sat in a savings account.
Property is outperforming almost all other types of investments at present so there has never been a better time to purchase a property either for investment or as a buy-to-let. With stocks and shares there is often volatility yet with property you can touch and feel it, as long as you are in for the long to medium term and your property is tenanted you have a growing asset.
Buy-to-let investment is very different from owning your own home. When you become a landlord, you’re effectively running a small business – one with important legal responsibilities.
The key to successful property investment is to do your research and seek expert legal advice before buying.
When purchasing a buy-to-let property there are different legal and tax implications to buying your own home no matter if you are based in the UK or overseas, we always recommend that you speak to a solicitor & Tax advisor who is experienced in all aspects of property transactions.
Whether you are using a property management company or managing your property yourself it’s good to check these buy-to-let tips when it comes to letting out your property.
Successful Buy-to-let is Dependent on the Following Criteria:
- Buying in the right location
- Buying at the right price
- Finding good tenants
- Managing the tenancy properly
- Complying with the rules & legislations
- Not getting emotionally attached
- A growing population
Top Tips for Property Investors:
- Research the market
- Choose the right location
- Sort out your finances
- Think about your target tenants
- Negotiate the price
- Know the pitfalls
- Use a reputable letting agent
- Be properly insured
Get to Know your Legal Obligations as a Landlord:
- Gas & Electrical
- Energy Performance
- Protecting Deposits
- Smoke & Carbon Monoxide Alarms
- Right to Rent
- Landlord Licensing Scheme
- Health & Safety Inspections
- Checklist for renting
Use a Reputable Property Management Company
Property management is one of the most important aspects of a successful property investment.
Make sure you use a reputable company with good testimonials. A good property management company will have experience in landlord and tenant law, they will be able to advise you about your rights as a landlord and the responsibilities you must adhere to your tenants as well as guiding you through the tenancy agreements to make the whole process as simple as possible.
Make sure you Obtain Landlord Insurance
As a landlord, you’re exposed to many more risks than you think when you are letting your property to tenants you’ll need more than just standard home insurance. While you’re not legally required to have landlord insurance, there are risks associated with a rented property that won’t be covered under a home insurance policy.
It's vital that you have buildings and contents insurance cover so that, in the event of a storm, flood or other incident or accident, you won't be left out of pocket.
A good landlord insurance policy should include buildings cover, and cover your property for accidental damage. We also think you should be covered for loss of rent.
How to Make a Return in Property:
- Return on Investment (ROI) – This calculates the Gross Yield by taking the annual income from the property before expenses divided by its purchase price.
(Knowing the gross yield gives you a very general idea of whether a particular property is a good investment – and gives a quick and easy way to compare different properties to each other).
- Return on Capital Employed (ROCE) – This calculation gives you a more detailed picture of your investment. You must take into account all the expenses associated with the property income to achieve your annual net income (profit) and divide this by the property purchase price again taking into account all the associated costs.
(The lower amount of capital (money left in) the higher the return and the more your money is working for you).
- Capital Growth - When a property increases in value over time. On average property prices increase 5% per annum but this should not be taken into account when calculating your return as property can also go down, so any capital growth should always be treated as a bonus when selling your property.
Leverage
Leverage is simply put is utilising debt to finance the acquisition of a property. In property, you can use leverage as a means of increasing the return on equity invested through obtaining a mortgage/finance.
This is something that cannot be done with investing in other asset classes for example with trading stocks and shares or investing money in savings accounts and relying on bank interest.
Leverage enables investors investing less money to generate a greater return on capital / cash employed (ROCE).
Investors often think when they have a lump sum of cash to invest its best to put all of the funds into one property, this is not true. The experienced investor will utilise what is called ‘gearing”, this is where the lump sum of cash will be divided between several properties and utilised as deposits and then finance the balance.
Example:
Both buyers have £100,000 to invest:
- Investor 1; purchases his/her property for £100,000 cash and if the property then rises in value by 25%, the value of this/her portfolio would be £125,000.
Investor 2; decides to purchase 4 properties each worth £100,000 but divides the funds into 4 x £25,000 (25% BTL deposits) and uses finance for the remaining balance on each property (4 x 75% LTV, a typical loan to value amount from the lender). If these properties rise by the same value of 25%, investor 2’s portfolio is now worth £500,000.