The option to own an investment property has long been a popular one, and the current increase in housing costs has increased the demand for rental homes more than ever. It can be a useful thing to have if you’re in a position to invest in alternative property investment. We’ve put together a guide for novice investors below.
Do some research on the locations where you’re thinking of buying an investment home. The location’s strength, the rental yields available, the amount of demand, and the possibility for capital growth should all be taken into account. Additionally, it’s critical to consider regions with forecasts for strong price rises and a track record of profitable investment.
When searching for an investment property, the next decision to make is who you want as your “ideal” tenant. This will enable you to decide whether to buy a house or a flat and whether you want to live in an urban or rural region. Are there decent transportation options, for instance, if you’re looking for a young professional? Or, if you’d rather be with a family, are there any nearby schools?
Once you’ve chosen the area where you want your property to go, you can start looking at various property types.
Off-Plan Properties — This is when you buy a property when it is still in the planning or development stages, not yet finished. Due to the possibility of capital growth, decreased expenses, and the appeal of a newly constructed property, this is frequently a well-liked investment kind. These are frequently discounted in order to draw in investors.
Renovated Property – These homes are frequently old or historical buildings that have been updated to fit contemporary standards. Investors who love the appeal and character of older buildings and wish to add their own flair to it may find them to be attractive.
Residential properties are in high demand because young professionals are finding it difficult to purchase homes and instead are staying in rentals for extended periods of time.
Student housing – As more and more people choose to attend college, the need for student housing is rising. Given that the rent is greater than it has ever been and that rental yields are increasing, it is unquestionably an excellent investment. Students are sometimes thought of as good tenants as well since they respect the landlord because they view him or her as an authority figure. Make sure the property has decent transportation options or is close to the university or city center if you intend to rent to students.
Buy to Let Loans
You can be qualified for a “Buy to Let” mortgage if you want to invest in a house or apartment. There are a few requirements for these: You must have a strong credit history, own your home outright or with a mortgage, and you should earn more than £25,000 annually (it’s challenging to find a lender otherwise). You must also understand the risks involved and be able to afford to take them.
The loans themselves typically cost more, have a higher interest rate, and call for a larger down payment. There are numerous possibilities, just like when getting a mortgage to buy a home for yourself.
A mortgage with Fixed Rate
Mortgages for buy-to-let properties often last only two to three years. Regardless of whether the standard variable rate (SVR) of the lender changes or not, the mortgage rate is fixed for a predetermined period of time. When your fixed term is up, the loan will switch to a variable rate mortgage, which tracks your interest rate using the lender’s SVR.
A mortgage with a standard variable rate
Due to the fact that it follows the lender’s SVR, this particular mortgage is subject to interest rate rises. This sort of mortgage typically lacks incentives and discounts, making it a more expensive method of paying off your mortgage.
A tracker-rate mortgage tracks the Bank of England’s bank rate, which determines the interest rate. Your interest rate is likely to change since it closely tracks the rate, which is a form of the rate that frequently fluctuates. You’ll probably transition to an SVR mortgage when the predetermined period of time expires.
In this mortgage, the borrower repays only the interest up until the end of the period, which is typically 20 to 30 years. The Borrower shall repay the Loan in full at the conclusion of such period. Although buy to let investors consider them to be one of the most popular mortgage types, you must be ready to pay off the lump sum when the time comes.
The maximum loan amount you are permitted to take out while investing is frequently correlated with the anticipated rental revenue. Typically, lenders demand that your rental income be 20–30% greater than your mortgage payment.
Before making an investment in real estate, you should be informed of any costs that may be involved. One of the key ones is that the stamp duty on a property that is not your primary residence will be greater.
For basic taxpayers, the Capital Gains Tax (CGT) rate for buy-to-let and second homes is 18%; for extra-rate taxpayers, the rate is 28%. The lower rate of CGT is 10% for other assets, and the higher rate is 20%. If you decide to sell your buy-to-let home, you typically must pay CGT if your profit exceeds £12,000. Couples who hold assets together can combine this benefit, allowing them to make up to £24,000 before taxes. Any profits must be reported on your self-assessment tax return since they will be taken into account when determining your status for the year and could put you at a higher tax rate. Rent payments are also subject to income tax, and you must report them on your self-assessment tax return for the year they were made. Your income tax bracket determines the proportion you will be taxed.
It’s important to keep in mind that you’ll also need to budget for the price of rent, landlord insurance, letting agent costs, and any necessary property upkeep as you’ll be legally responsible for it. However, as you can see through this guide it is possible to invest in properties easily without the need for years of knowledge. While this is a conclusive guide, it by no means is going to cover every aspect that you will need to know. With that in mind, please feel free to reach out or leave a comment or question with any other concerns you may have with regards to investing in property.