The property rental market has been growing at a scorching rate, and the future looks promising for this sector. If you want to be part of this lucrative sector, here is a guide to help you make the most of this market.
There are multiple factors when investing in a property, including taxes, location, and type of property. Each property has its pros and cons, which will be discussed to make your decision easier.
Here are the top property investment tips for you:
Get the Basics Right
The property market continues to be profitable even with changes in tax policies and rising property prices. The buy-to-let market is leading the charge and has excellent prospects. Investment property is meant to generate returns over the long term.
You can expect dual benefits from investment property, and these include value appreciation and regular rental returns. Another alternative to the buy-to-let market is the buy-to-sell market, where your only option is residential property.
There are different options under buy-to-let including:
- Residential Lets
- Holiday Lets
- HMO or Houses of Multiple Occupancy
The North West Region of the UK has shown a special price appreciation. For a buy-to-let investor, tracking the rental demand is essential. The demand for residential accommodation is rising due to challenges with purchasing real estate and no social housing policy.
Proper research into demand, capital growth, and rental yields is critical to succeeding as a property investor. You need to decide whether you will be making a full down payment or getting a mortgage.
Commercial property investments also yield high returns. The stamp duty on commercial property is lower compared to residential property. You can get a security deposit equal to a rental for three months for such property, while for a residential property, you just get a monthly rental.
Challenges in commercial properties include vacancy issues, expensive mortgages, and you need experts for valuation. Residential property scores over its commercial counterparts with easier mortgages, higher rentals with renovated properties, and higher demand. Before renovating your property, compare home improvement loans & find the best rates.
Know Your Risks
Like any other asset class, property investments have their share of risks. One of the significant risks with property is a possible decline in value over time. This can be avoided with proper research considering any future regeneration in the area, high rental yields, and the specific tenant requirements.
Another risk with property is unreliable tenants. You can protect yourself by screening the tenant through a property management company.
You also need to pay attention to your own credit rating. If you need help with your credit rating, head over here.
Get a legal professional to draft a risk-proof rental agreement, including delayed payment charges and other clauses. Play it safe by starting with a small investment and get professional advice regarding the area’s prospects. You could start with a single property and scale up your property rental business as you gain experience.
There are some great investment opportunities for as little as GBP 50k, but assess the capital appreciation and rental yields before going ahead. The importance of location cannot be overemphasized when it comes to selecting a property.
The Northern part of the UK is booming, and tenants are making a beeline for it. This would be a good starting point for a property investor.
Scout for the Top Locations
Returns from the property are calculated in terms of rental yields. You need to divide the rental by the property’s market price and multiply the result by 100 to get the renal yield in percentage terms.
You need a minimum rental yield of 5%, and for the right property, a yield of 8% or more is a possibility. The higher the rent income, the better your cash flow. Your best bet would be university areas where student accommodation is in high demand like Leeds, Manchester, and Liverpool.
Student-centric properties command a rental premium in areas close to universities, while residential properties close to business hubs generate higher yields. However, your decision to invest should factor in capital appreciation as well.
If you are a short-term property investor, you need to have an exit strategy in place. This would require having a target price in mind and selling off the property. The property price trends in the location need to be monitored closely to reach your goal.
To get the highest capital appreciation, look for discounts in hot investment destinations. An off-plan property comes at below-market prices and would generate higher returns.
Returns from investments are always calculated on a post-tax basis, so you need to know the tax implications of property returns. An essential component of property investment would be stamp duty land tax. Properties under GBP 125,000 attract a tax of 3%, while properties between GBP 250000 and GBP 925000 are taxed at 8%.
You also need to consider income tax for the rental you earn and capital gains taxes when the property is sold for a profit. The stamp duty land tax and income tax slabs should be considered before investing in property.
Your employment status also affects your tax with different rates applicable for landlords and those who invest in property on a part-time basis along with their full-time profession.
Consult An Expert
As a first-time property investor, you need to know all aspects of investing. There are professional companies that help you decide things like furnished or unfurnished property. If you want to cater to the student or young professional segment, then furnished properties are essential.
The disadvantage of a furnished property are that you need to pay for damages. Unfurnished property is less stressful that way. Since your tenant will have invested in the furniture, they are likely to stay longer.
You will get tips on boosting your property value by installing high-quality appliances, replacing worn-out windows and doors, and more. The age of the property decides the renovation required.
Whether it is residential or commercial property, there are a lot of profitable opportunities for first-time investors. There are many options like hotels, student accommodation, or residential accommodation, and you need to decide what’s the best choice for you, depending on your budget.
Research needs to be conducted to get the best locations, and you need to monitor the market to decide when you want to exit. Get professional advice regarding the tax implications, and you are sorted.