publication date: Aug 12, 2011
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
Buying Property as an Investment
How to Buy to Let Property
With news of rents rising as much as 16% when property prices are falling, now might be considered one of the best times ever to invest your money in buy to let rather than see inflation eat away at its value. So is the current property market at a state where buy to let is worth investing your hard earned cash in? Kate Faulkner from independent advice site Designs on Property answers your questions on whether it really is a good time to buy to let.
If you are interested in buy to let, the first thing to do is to consider whether buy to let will deliver against your investment objectives. Typically buy to let investors want one of two things. They either want capital growth, so don't mind too much about generating excess income from rents on a monthly basis, they just want tenants to cover the costs. Others property investors though are keen for buy to let to generate additional income so they can retire early or even leave their job to become full time investors.
In the ‘good old days' it was possible to get both excellent capital growth AND make money on rental income. In today's depressed property market, we are finding that you either invest in a property for capital growth OR for extra income. What type of buy to let property you invest in and where then becomes extremely important in today's market.
Research into different property types and areas across the UK suggests that buy to let areas and properties are dividing into two. They are either great for delivering capital growth or great income, but a combination of the two is unlikely to be achievable unless you are happy to carry out other types of property investment such as build to let or a major refurbishment project.
It's not too difficult to spot places and property types that are growing in value and are likely to be worth investing in for buy to let. Property prices will have either recovered to 2007 levels, or they will be around 10% below, but are not falling and the market is slowly picking up. Make sure when you are buying the property you get a discount if you can and you need to be aiming for a minimum of 7% yield to ensure you can cover costs in the future.
Properties and areas where yield is likely to be better will probably be around 20% less than 2007 levels and won't have grown for the last five years. In this case, the beauty of investing in today's market is you should be able to secure a property for anything from 10-30% discount off the current depressed property prices. This should improve the yield you can make, but be aware that prices in this area are unlikely to recover for five or more years to come, so you must make sure you always rent the property and are making a good return of 7% or more from a yield perspective.
However, if you are hoping to invest in property and make a return in the next five years, you will struggle to do so from a capital growth perspective. From an income perspective though, the property should work for you from day one. You need to choose your mortgage carefully with proper, independent advice from a mortgage broker who understands how buy to let works. Finally, you need to make sure you protect your investment from the not so good things that happen in life such as sickness, losing your job and death or divorce. Without the cushion of capital growth on properties we saw from 2000 to 2007, it's vital to ensure you can keep your investment until you want to cash it in.
Why not come on our Buy to Let Course - The Truth about Buy to Let? Why not email us for a Buying at a Discount Checklist and our free property market update.
For more free help on buy to let, take a look at our related articles:-
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