Buying an investment property can seem like a daunting prospect. There are plenty of challenges to take into consideration – and they can soon multiply when you start to develop your portfolio by accumulating further assets.
But there are plenty of benefits to property investment too. And, with the help of a good letting agent, you can maximise these opportunities and use them to your advantage. Before you can reach that stage, however, you need to have a strong understanding of the market plus the ins and outs of investing and how to go about it. That is where Hunters can help you.
Here, we’ll discuss the different options available, the pros and cons of property investment, as well as what to look out for when making a purchase. This guide is here to help you, but it’s crucial that you do your own research and ensure you are making fully informed decisions that are right for you.
We have lettings experts located across the country who can offer invaluable support and information, so read on to find out more and get in touch with us today.
What are the different types of property investment?
Before you venture into the world of property investment, it’s important to know what your options are. There are several avenues you can pursue, and we’ll explain a little more about each of them here.
Buy-to-let property investment
This is the most common form of investment, where you purchase a home – either outright or with the help of a buy-to-let mortgage – and let it out to a tenant. The rent you charge should be enough to cover the mortgage payments (if applicable) plus the cost of maintenance, leaving you enough to still make a profit.
Student property investment
This works in much the same way as a conventional buy-to-let investment but targets a very specific demographic. Buying an investment property to let to students means you’ll have to think carefully about the location and focus on ones close to universities. It’s also likely that you’ll need to obtain a specialist licence from the local council if you wish to let any property out to students. This will incur a cost and there will be a number of regulations to adhere to.
Build-to-rent property investment
This type of investment focuses on properties that are built with the sole intention of being let out. With demand for rentals rising steeply over recent years, it’s becoming an increasingly popular niche.
HMO property investment
HMO stands for houses in multiple occupation, which allows you to let one property out to several tenants who’ll each have their own bedrooms while sharing kitchen, living and bathroom areas. This type of agreement enables you to maximise your rental income but can offer challenges in that you’re dealing with multiple tenants. And as with student lettings, you’ll need to obtain the relevant licence from the local council if you wish to rent out an HMO.
What are the benefits of property investment?
There are plenty of advantages to buying an investment property and expanding your portfolio. For example:
The money generated from property investment can be used to improve your quality of life and help your retirement planning. It offers the opportunity to create a healthy, passive income over an extended period.
Of course, there are plenty of costs associated with becoming a landlord. But many of these expenses are tax-deductible – such as insurance, letting agents’ fees, maintenance and legal fees. This means you can reduce your tax bill come the end of the financial year.
Favourable market conditions
The average cost of rent continues to increase, which means so does your potential to make a profit. Plus, it’s thought that growth rates will reach 8% by the end of the year – more than the 5% initially forecast.
And lettings demand remains high, comfortably above the five-year average, which means there should be plenty of prospective tenants.
You can afford to be flexible in your approach, especially if you reach a point where you have several properties in your portfolio. If one is becoming particularly challenging or is not delivering the returns you would like, you can opt to sell and look elsewhere.
And as the landlord, you have a certain degree of control when it comes to setting rental prices to be competitive in the market. Your tenants can refuse to agree to any increases and take it up with the council, but ideally this is a scenario you’d want to avoid. That’s where an experienced letting agent can really help you by offering expert advice and guidance on setting rates that both parties are happy with.
The property market is seen as a more stable investment vehicle than other options, such as stocks and shares, where prices are likely to fluctuate more wildly.
What are the challenges of property investment?
It wouldn’t be right for us to offer property investment advice and guidance without making you aware of the potential issues that can arise:
Thankfully, they are in the minority in our experience, but those who don’t take care of your property or pay their rent on time can start to cause you a major headache.
All properties are bound to endure some wear and tear, so you need to make sure you keep well on top of this to leave your portfolio looking in the best possible shape. It can prove prudent to set up a separate fund to pay for these works, ensuring they can be completed in a timely manner so as to avoid any potential conflict with the tenants.
As it stands, rental yields are strong – as high as 8% in some areas of the country. But you need to be aware that those trends can change over time and have a plan for when they do.
Legislation and paperwork
You need to be across any regulatory changes that might affect you as a landlord, not to mention paying tax on your income and ensuring you have the appropriate energy, electricity and gas certificates. Plus, you’ll need to take out insurance and look into registering with the likes of the National Residential Landlords Association.
What should I look for when buying an investment property?
There are a lot of factors that might influence your property investment decisions. These include:
Research the average prices in your desired location and give yourself an idea of what you can afford to invest in. Always operate within your means and don’t overstretch yourself.
Look into the average rental asking prices in the area to gain an understanding of what you can expect to charge your tenants. You should also research the yields, which will play an important role in your affordability calculations.
When buying an investment property, location is key. Is it going to prove suitable for your target market? For example, those who work in the city are going to prioritise a central location or at least convenient links to the local transport network.
Is there a strong and consistent level of demand for the type of home you’re looking to invest in? If it’s lacking, it could limit your ability to find a tenant and impact your portfolio’s profitability.
As an example, a family of four is unlikely to be looking for a city-centre apartment. So, if you’re targeting that audience then your property investment strategy ought to focus on homes with at least three bedrooms, garden space and good schools nearby.
This also feeds into your affordability calculations. If a property needs a lot of work, it might be available at a lower purchase price but that’ll be offset by what you spend on its renovation. Older properties may also require more regular maintenance, which eats into your profit margin.
How important is it to diversify my property investment portfolio?
Rental property management is not easy, so our advice is to start small before you think about adding too many assets to your portfolio. But there is no doubt that as you become more experienced – and more successful – diversifying is a sensible strategy.
For example, it could prove prudent to invest in properties of different types and in different locations, such as city-centre flats, suburban family homes and country cottages. This offers you the chance to target a wider audience, as well as spread the risk in case there is a downturn in demand for one particular type.
Not only that, but the more properties you invest in, the easier it is to cover any shortfalls should you experience any periods where you struggle to attract tenants. And of course, having several income streams can only serve to improve your financial position and open up further property investment opportunities.
What do I need to consider before I invest?
One of our key pieces of property investment advice is to define a clear strategy before you begin.
Are you going to focus your efforts on a specific area? Will you target a certain demographic? Perhaps you’ll choose to look exclusively at new builds or use your expertise in dealing with a particular property type. The crucial thing is to have a plan in place and stick to it while retaining the ability to pivot and change your approach should that be necessary.
And we have touched upon it already in this guide but doing your due diligence in terms of affordability is of paramount importance. You need to know what you can afford in terms of a deposit, and how that’ll impact your mortgage payments. You also need to know what you can expect to charge your tenants, and whether that’ll be enough to cover your costs as well as make a profit.
On top of all that, you need to partner with a lettings agent you can trust. That means choosing one with experience, knowledge and a proactive approach that’ll help you make the most of your portfolio. Hunters ticks all of those boxes.
Why should I choose Hunters?
There are plenty of reasons to trust Hunters with your property investment portfolio. Here are just a few of them:
- We boast lettings experts up and down the country, all of whom have a wealth of industry experience.
- We offer a range of landlord services, from simply finding tenants through to full management of your portfolio.
- Our team can offer invaluable support when it comes to letting and protecting your properties, so you can rest assured your investment is in safe hands.
- You can access our landlord portal, which makes it perfectly straightforward to keep track of all your lettings.
- ·Our customer service rating is 94.5%, based on more than 2,500 reviews.
- We have a bank of resources for landlords, including guides on insurance, tax obligations, how to let and more.
- So, if you’re thinking about taking your first steps into property investment or looking to expand an existing portfolio, we are here to help. We’d love to hear from you and know more about your plans, so why not get in touch with us today?