The right investment vehicle to deliver on your financial objectives
There is a significant amount to understand about how to let and manage property, but there’s also a lot of work to do before you buy. You must ensure the property is your right investment vehicle and choose one to deliver on your financial objectives.
Defining your investment objectives
What are your investment objectives? Are you primarily looking for a monthly income from rental profit, or are you more interested in building up equity to get a lump sum return in the future? Do you want an asset you can pass on to your children, or something they can live in themselves someday? It’s important to know what kind of returns you want and when.
Assessing property as an investment
Is property the right investment for you? Before moving ahead, discussing your plans and objectives with our expert team will enable you to make an informed decision. While property can be a proven investment, it’s not necessarily right for everyone.
Choosing the right location
Many landlords invest reasonably locally. There’s not necessarily a need to chase ‘hotspots’ as once they are ‘known’, the best growth can already be priced. The good news is you can find suitable rental investments nationwide.
Selecting the type of property
What type of property should you invest in? This will depend primarily on supply and demand in your local area now and in the future. The critical thing to remember is this isn’t about what you personally like or don’t like; it’s about what tenants are looking for and what kind of property will deliver on your financial objectives.
Identifying your target tenant
What type of tenant and let should I have? Again, this is mainly down to supply and demand, so speak to qualified agents in your area and conduct online research to see where the most significant demand is coming from. It will also depend on your objectives. For example, if a three-bedroom house best meets your long-term goals, families looking for unfurnished accommodation could be your target market.
Considering furnished versus unfurnished options
If you focus on rental income, you could offer furnished flats or House in Multiple Occupation (HMO) rentals to professionals or students.
Understanding costs involved in property purchase
In addition to the deposit, the most significant consideration here is the 3% higher rate stamp duty that applies to any property you buy in addition to your own primary residence – and it’s applied to the whole price of any purchase worth £40,000 or more.
Meeting lettings standards
Numerous health and safety considerations need to be satisfied, and the property must meet certain overall standards to be legally let, such as gas and electrical safety checks. The amount you’ll have to spend will depend on the property’s condition, but make sure you know how much you’ll have to invest before you buy.
Budgeting for letting costs
In addition to any necessary upgrades, refurbishment and furnishing, you need to be aware of all the other costs you’ll incur and expenditures you’ll have to budget for. These include mortgage payments, landlord insurance, local council licensing fees, gas and electrical safety checks, repairs and maintenance, and allowance for void periods.
Additional considerations
You will also be liable for council tax, and if the property is empty for some time and a second property is vacant, this might incur an increased charge, so double-check the amount you will pay each month.
Assessing and comparing financial property returns
Understanding three key figures is crucial for assessing and comparing financial property returns. First, we have yield, which represents the annual rental income as a percentage of the property’s value. This provides a gross yield percentage that allows you to compare investments and gauge their profitability.
Calculating profit is another crucial figure, the rental income minus costs. Maintaining monthly and annual figures is advisable, ensuring that allowances for voids and more significant periodic maintenance works are accounted for. This comprehensive approach will give you a clearer picture of your investment’s health.
Return on investment (ROI) is the annual profit figure expressed as a percentage of the total capital invested in the property. Any equity growth must be included in this calculation. ROI is a pivotal metric for comparing the performance of buy-to-let investments against other investment opportunities.
Additionally, if you are investing with 100% cash, it is vital to consider inflation in your calculations. This ensures that your investment returns are realistically assessed over time.
Individual vs. limited company purchases
A significant consideration for landlords is whether to purchase property individually or through a limited company. One primary reason for choosing a limited company structure is its potential tax benefits. You should obtain professional advice before making a decision.
Self-management vs. using an agent
Another important decision is managing the property yourself or using an agent. Employing an agent to handle letting and management can alleviate substantial work and responsibility. While there is a cost associated with this, a professional, experienced agent should deliver savings and value far exceeding their fee.
A crucial benefit of using an agent is ensuring legal compliance, significantly reducing stress for the landlord. If you choose to manage the lettings and management yourself, it is imperative to understand your legal responsibilities and obligations.
Understanding legal responsibilities
You must invest time and effort in staying updated with legislative changes. Non-compliance, even if unintentional, can result in severe penalties.
Handling deposits
Landlords must know the maximum deposit permissible under the Tenant Fees Act and know how to protect it correctly in a government-approved scheme.
Drafting contracts
Each tenancy should be governed by a written agreement, the most common being an Assured Shorthold Tenancy Agreement (AST). Understanding the rights and responsibilities of both parties and the enforceability of contract clauses is vital.
Managing tenant issues
Whether dealing with tenant queries, rent arrears, or problematic behaviour, it is crucial to handle these issues professionally and legally.
Legal interventions
Knowledge of eviction procedures is also essential. Landlords must understand when and how to require a tenant to vacate a property and the steps to take if legal intervention is necessary. Incorrect procedures can render an eviction invalid.
Want to explore your investment property funding options?
If you’d like to discuss whether investing in property is right for you and to explore your funding options, contact our experts, who will happily answer your questions. Contact our specialist team today!
Please note: this is a long term investment which you hope will generate rental income along the way and a profit when you sell the property, but bear in mind that if you need access to some cash, a property can take time to sell or remortgage. If house prices fall, you might not be able to sell for as much as you had hoped. You would have to make up the difference if the property sold for less than you owe – a risk that increases, the higher the percentage you borrow. If you sell for a profit, you may have to pay capital gains tax. Don’t forget that with a variable rate mortgage, your costs will rise if interest rates go up. This would eat into, or even wipe out, your income and profit. It is recommended that you also maintain access to emergency funds to cover your mortgage payments during ‘void periods’ that may arise whilst you have no tenant and the property is not let.
