Buy-to-let mortgage rates may be at low but investing in rental property for beginners is much tougher than it once was. House price rises have also stalled, denting the prospect of making money from property inflation. But investing in rental property still appeals to many Britons, as they trust bricks and mortar and feel that they can add value to a home in a way they can’t do with an investment fund.
Buy-to-let may be an option for those with enough money to raise a deposit, especially compared to low savings rates and stock market swings.
Meanwhile, the property market bouncing back after its financial crisis lows has encouraged more investors to snap up property in the hope of its value rising. House price rises have priced most people out of London property investment, but some areas of the UK are still to regain the ground lost after the financial crisis slump and investors are increasingly looking there for stronger returns. Low mortgage rates are helping buy-to-let investors make deals stack up. But rates may rise in the future and you need to know your investment can stand that test.
Yet there are positives. Greater demand from tenants, rents that should rise with inflation and the long horizon for interest rate rises, mean many investors are still tempted by buy-to-let.
Investing in rental property for beginners
Investing in rental property can be a viable option for beginners but they need to consider a few things before committing to the investment:
Research the market
Make sure buy-to-let is the investment you want. Your money might be able to perform better elsewhere. Mortgage rates are lower at present, but investing in buy-to-let means tying up capital in a property that may fall in value. This compares to the possibility of a 5 per cent annual return from an income-based investment fund, or 3 per cent on a fixed rate savings account. You will also have the ability to sell up quickly if you want.The flipside is that you cannot buy an investment fund and set about renovating it and adding value yourself.
Investing in buy-to-let involves committing tens of thousands of pounds to a property and typically taking out a mortgage. When house prices rise, this means it is possible to make big leveraged gains above your mortgage debt, but when they fall your deposit gets hit and the mortgage stays the same. Property investing has paid off handsomely for many people, but it is essential that you consider it from your perspective, acknowledging the potential advantages and disadvantages.
If you know someone who has invested in buy-to-let or let a property before, ask them about their experiences. The more knowledge you have and the more research you do, the better the chance of your investment paying off.
Choose a promising area to invest
Promising area does not mean most expensive or cheapest. Promising means a place where people would like to live and this can be for a variety of reasons. You need to match the kind of property you can afford and want to buy with locations that people who would want to live in those homes would choose. In most cases people tend to invest in property close to where they live. On the plus side, they are likely to know this market better than anywhere else and can spot the kind of property and location that will do well. They also have a much better chance of keeping tabs on the property. Yet it is also worth bearing in mind that if you are a homeowner then you are already exposed to property where you live – and looking for a different type of home in a different area might be a good move.
Get the best buy-to-let mortgage
It pays to speak to a good independent broker when looking for a buy-to-let mortgage. They can not only talk you through what deals are available but they can also help you weigh up which one is right for you.
Instead of imagining whether you would like to live in your investment property, consider it from the perspective of your target tenant. If they are young professionals it should be modern and stylish but not overbearing. If it is a family they will have plenty of their own belongings and need a larger property with all the facilities.
Remember that allowing tenants to make their mark on a property, such as by decorating, or adding pictures, or you taking out unwanted furniture makes it feel more like home.These tenants will stay for longer, which may be a plus for a landlord.
It is also possible to take out an insurance policy against your tenant failing to pay the rent, usually known as rent guarantee insurance. This can cost as little as £50, and may be available as a standalone product from a specialist provider, or as part of a wider landlord insurance policy.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.