The decision to buy an investment property can be an easy one to take and it may prove just as easy to find the property and finance it, but is worth thinking through the finances carefully on every property before you buy.
Property can make you money in two ways – capital growth and rental income. Capital growth is the increase in the value of the property (capital appreciation) and in a strong market it is likely to be very good as you can see the value going up year on year. However, even in today’s tough market, good property is holding its value and it is pretty rare to lose money on property in Oxford if you own if for a number of years.
Rental income is good at the moment as there are a lot of people renting rather than buying so rental values are strong (they were not three or four years ago), so your rental income now should more than cover costs such as fees, mortgage repayments and service charges such as ground rents and maintenance. But it is worth doing the maths before you buy.
Most specialist buy-to-let mortgage lenders will lend up to 80% of the value of a property, but rates tend to be higher than a regular domestic mortgage so you have to be sure that the rent is going to cover the mortgage and all your other costs. Once you know what the property is going to cost you in your own cash deposit, the monthly mortgage repayments, outgoings (such as service charge, agents’ fees, insurance and an allowance for voids when it is not let) then you can calculate what your rental yield will be.
Essentially, if you pay £200,000 and it is being let for £10,000 p.a., the net rental yield is going to be £200,000 divided by the rent (£10,000) which is 0.5 or 5%. So it is important that the mortgage repayments are less than 5% of the value of the property. If they are more, you will not have enough income from property to cover your costs.
Of course, you need to have a good accountant to advise you on the tax breaks and income tax that will be payable on the rental income and, if you sell an investment property, you will also be taxed on it at the prevailing rate. However, many investors use property to secure further loans to finance other ventures or outgoings.
Gareth Gould of WEST-The Property Consultancy, explains: “Anyone thinking about investing in rental property should call me to discuss the best purchase for their budget. I can also handle the introduction of a tenant and manage the property throughout a tenancy. It is a market where there is growth and a genuine shortage of top quality property, so it is a good area to invest for long term growth – which is more than can be said for many pensions at the moment.”
Call Gareth at WEST–The Property Consultancy on 01865 510000 for more information.