What are your property investment objectives?

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When working with buy-to-let investors, we find that not all of them plan to invest in property. For some, they became a landlord almost by ‘accident’. 

They may have wanted to buy another home, couldn’t sell their own and decided on a let-to-buy to release equity to buy a new one. Some have inherited a property and decided to let it, while others wanted to buy a property near where they live to secure a home for their children in the future and let it in the meantime. 

Whatever your reason for letting out a property, to be a successful investor, it is helpful to be clear from the start what you want your investment to deliver and within what timeframe. 

Why are you investing in property? 

- Is it to secure an income to supplement your pension in retirement? 

- Is it to generate a lump sum of cash to spend on something specific? 

- Is it to ensure there is always a property available for your children to live in? 

How long do you expect to invest for?

- When do you need to start realising retirement income?

- Are you going to sell the property and reinvest the capital growth?

- Or do you want to keep letting the property, pay off the mortgage and draw down the future rental income in retirement? 

Once you have clarified your reasons for investing, consider how much you are able to put on one side for that length of time. Most people who invest in a property to let will hold the investment for a period of 15-20 years, so how much could you afford to invest for that period of time?

When considering how long you hold the property for, bear in mind, property is not an asset you can cash in quickly. It can take three to six months, or longer, to sell the property to recoup the investment you made.

While we have a market where property prices can rise and fall, it is important to only have to sell when you want to, rather than a time when the property market is slow and falling in value.  

Finally, it is worth calculating what financial returns each individual property you consider can deliver by clicking on the link below.

How to calculate a property’s return from buy-to-let investment

It is always worth calculating what financial returns each individual property you consider can deliver, before you commit.

Example:

You buy a property for £150,000:

25% Deposit £37,500
Buying Costs £3,000
Certification (gas & electric safety) £2,000
   
Total investment required: £42,500

Capital growth potential

If the property were to grow in value by 3 per cent every year, after 15 years it could be worth just under £234,000. This would give capital growth of £84,000.

Rental income
If the rental income from the property is £800 per month, this would deliver an annual rental income of £9,600.

As you put down a 25 per cent deposit, you will have a 75 per cent loan-to-value. Assuming you were on a 3 per cent mortgage rate, depending on the individual costs, the property could generate a net profit from the rental income of just over £3,000 per annum.

Please bear in mind that the capital growth and the rental income could be liable for tax. 

To find out more, please contact one of our specialist buy-to- let advisers.

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