Property is the kind of investment that can give you both a great income and a legacy for the future.
But if it was easy, everyone would be doing it.
Property investment is like any other investment – it comes with an element of risk and you need to know what you’re doing.
Buying an investment property is only one piece of the puzzle, too, so this guide will tell you:
- What to look out for in an investment property
- Where you could consider buying
- Some key things you’ll need to think about before you become a landlord
Is property a good investment?
Property in the UK remains a solid investment – despite the economic uncertainty caused by Brexit and the coronavirus pandemic.
Here’s why now is a great time to invest in property:
1 Currently there is a high demand / low supply ratio for rental properties in the UK
In the third quarter of 2020, Rightmove reported record average rents of £964 per month outside of London, which is driven by increased demand from renters
2 Interest rates remain low
Interest rates were cut to a record low 0.1% in March as the Covid-19 pandemic took hold.
That means great buy-to-let mortgage options if you’re a first-time investor.
3 Stamp duty cuts
The stamp duty exemption threshold was raised to £500,000 in July, having previously been set at £125,000.
That means investors buying properties costing £500,000 or less will only pay the 3% additional property surcharge and many could make average savings of around £10,000.
However, if you’re looking to take advantage, you’ll need to move quickly, with the threshold set to revert back to previous rules from April 1, 2021.
Find out more about what the stamp duty holiday means for landlords here.
What should I look for when buying an investment property?
Buying an investment property is less of an emotional experience and more of a transactional, business-like process – or at least it should be.
Here are five things you should definitely be thinking about when viewing properties to invest in:
Where your investment property is will go a long way to determining how successful it is as a rental.
A property in an area where rental demand is low could be a bad investment, even if the area is classed as ‘up and coming’.
Speak to your local agent and find out about the kind of properties that are most in-demand from renters.
And look for properties that are surrounded by good amenities, strong transport links and good schools – all things that are high on renter wish lists.
2 Who your tenants will be
As well as location, you should know the kind of tenants you’re looking to attract to your rental property.
Are you aiming for single young professionals or couples? If so, a flat or apartment close to amenities might be a good option for your investment property.
Perhaps your target market is young families looking to put down roots? If so, a larger property with a garden and in catchment for a good school might work if your budget allows it.
Find out about employment in the area you want to invest in and build up a picture of the kind of people who are renting properties in that location.
3 The finances
You’re not buying a property to live in – the most important thing with any investment property is that the numbers stack up.
Your financial strategy and budget should factor in all potential outgoings against what you can charge as rent for your property in your area.
Rental yield should also be key in your decision-making.
4 Low maintenance
One of a landlord’s biggest outgoings can often be ongoing property maintenance.
But a low-maintenance property doesn’t just mean one that’s in good condition.
Often, keeping maintenance requirements, and costs, to a minimum can be a case of keeping hold of good tenants.
A tenant who wants to stay in your rental property long-term will mean lower turnover of people renting your property and therefore less damage through moving items in and out.
A long-term tenant is also far more likely to treat your rental property like their own home, meaning less expense for you repairing heavy wear and tear between tenancies.
5 Capital growth
Property investment with a long-term strategy means you should always look at the potential for capital growth.
Firstly, what improvements can you make that will be attractive to renters and give the property’s value an immediate uplift?
Longer term, are there plans for regeneration in the area that could produce a spike in property prices?
How have property prices in the area performed over the past 10 years or more?
All of this information will give you a great idea of how your property’s value could increase over time, meaning when you come to sell, you could be looking at a healthy profit.
How to start investing in property: Questions to ask yourself before you begin
Buying a good investment property isn’t the only thing you’ll need to get right when you start out as a landlord.
You’ll also need to ask yourself these two key questions:
What type of landlord do you want to be?
Are you happy to be hands-on when it comes to your rental property, or would you prefer to take a more passive role?
Choosing to manage your property yourself is a big decision as it’s a lot to take on. You’ll need to:
- Comply with more than 160 pieces of legislation governing how you operate and ensuring your property meets health and safety standards
- Advertise your property
- Conduct viewings with potential tenants
- Produce and manage paperwork related to tenancies
- Deal with maintenance and emergencies
- Collect rent and chase missed payments
- Perform check-in and check-out inventories
- Deal with your tenant’s deposit and any potential disputes
Your other option is to use an estate agent’s management service.
Depending on the level of service you need, your estate agent can take care of all of the above and more, meaning complete peace of mind for you as a landlord.
Do you know your legal obligations?
The most important aspect of being a landlord is keeping your tenants safe by ensuring your rental property is fully compliant.
The list of legal obligations when you’re a landlord is vast and includes:
- EPC and MEES regulations
- Documentation and information
- Gas safety
- Smoke and carbon monoxide alarms
- Tenancy deposit protection
- Furniture and furnishings
- Electrical safety
- Legionella assessment
- Right to Rent checks
- Repairs and maintenance
- Permission to let
- Taxation responsibilities
Again, by using an agent’s full management service, you can ensure all of these obligations are taken care of.
Where to invest in property
Research from Zoopla revealed a number of great UK hotspots for buy-to-let investment in 2020 and 2021.
Gross rental yield: 7.6%
Gross rental yield: 7.5%
Gross rental yield: 7.4%
Gross rental yield: 7.3%
Overall, Scotland and the North East produce yields of 7.3% and 6.6% respectively, while Wales produces a 6% yield on average.
Yorkshire & The Humber (5.5%) and the West Midlands (5.4%) follow closely behind.
Contact your local Martin & Co branch to find out more about rental yields in your area.
If you’re thinking of investing in property, you could consider a holiday home.
But are they good investments? Find out everything you need to know in our guide.