Buying for Investment

When buying a property for investment it should be treated exactly as you would when you would enter into a new business venture. Mortgage available for investment is different from the normal mortgage you would take if you were buying for own home. The interest rate is higher and the deposit is much larger somewhere in the range of 20% or even 25%. Becoming a private landlord should not be seen as an easy way of making easy money. It can be riskier and more complicated. It can also be very time consuming, more than most forms of investment, and there is no guarantee that house prices will continue to rise. That said, having a second property to let to tenants could reap considerable financial rewards over time. Also, if it's a buy to let keep in mind the additional costs such as

• Maintenance costs of the property
• Letting agent's fees - letting agents charge around 8-10% of the monthly rent for finding and vetting tenants with an additional cost of around 5% if you require a full management service.
• Ground rent / service charges - applicable to leasehold properties.
• Legal insurance - to cover costs from evicting tenants in the event of non-payment, very important, as this can be very expensive.
• Insurance - Building and Contents Insurance for the items provided as part of the rental agreement.
• Furnishings - the purchase of any furniture. If the property is to be let furnished, make sure you are covered for this by your home Insurance.
• Gas / electrical appliances - cost of maintaining appliances and ensuring they comply with any regulations such as safety tests.
• Decorating costs - the property may require work ranging from painting, to a new bathroom suite before it is suitable for letting to tenants. This can be an ongoing cost as work may be needed every 5years or so at the least.

You can invest in different types of property; any house which is not your primary residence can be used as an investment property. Some options are:

• Holiday Homes: Now-a-days, idea of holiday homes is very popular with investors. Before buying a holiday home you need to decide whether you want it to be solely for your personal use or whether you want to let it. If you want to let it or could do so in future; you need to keep this in mind while buying. You should explore the rental potential of the property. You can cover costs by renting it out for certain periods in a year. Then there is the capital gain if the property market booms then the value increases faster than inflation.
• Buy to let: Buy-to-let has seen high growth in recent years. As many people invest in the property market to provide an income in their retirement. It provides a regular income from letting however you should do your research well before purchasing a property to let. More about this in our section Buy-to-Let.
• Second home: A second home could be in town which you travel for business or pleasure regularly, maybe a home for your child who is attending university. This is a capital investment which you may sell off when you feel no need for it. If it's for your child who is studying in a university, then it can shared with your child's friend's who pay rent which can go towards partial re-payment of the mortgage.
• Commercial Property: It can be anything from a bed and breakfast to a hotel or restaurant or a pub or office space. This is a more specialised market sector so preferably invest in it only if you have the experience for same.

For any investment to pay off it is important to ensure money is wisely spent. There are four important factors to be considered while purchasing an investment property

• Location
  Location is one of the most important aspects, whether it is a capital investment, providing a regular income from letting or both. Desirable properties are conveniently located for public transport, local amenities, restaurants and bars and have parking facilities nearby. If you are buying to let in the student market, proximity to the university is also a major selling point.
• Research the market
  Careful Research will help you in maximising your investment. Before your purchase study the market, study the rental potential of the place, you can get a lot of information from your local letting agent whether its student population area or more of young professionals. Check if it's an upcoming area which can increase the property value greatly, such are there new companies moving into the area, new transport lines, new restaurants, shopping areas and pubs.
• State of the property
  It maybe worth the while to buy a property (at the right price) which requires some work done. With some or little work such as painting, furnishing, you can increase the rental value of the property. Also, properties where you can add value by doing loft conversions or extension of a conservatory can increase the property value.
• Paying the right price
  It is important to make a profit on your investment that you must pay the right price when you buy the property. An overpriced property will always make no or too little money. If you are buying a property which requires further work, ensure that you do take into account the costs involved while working out your budget for that property.

Buying a property to let is a good investment and can provide an ongoing income. Many people are turning into this sector to provide for a steady income during their retirement period. But it is vital to choose the right property, right area else a wrong property can leave landlords with mortgage re-payments with no rent coming in.

• Explore the rental potential of the area before your purchase your property, the local letting agents can be a good source. Click here to check the propertyletting agents
• See who your target market will primarily be to ensure you cater to that section. If it is a university area then students will be your market, then furnishing your apartment to a very high standard will not generate extra rental from a group of students. However, if your target market is young professionals or families good furnishings & fittings will be help in increasing the rental and give your property a positive edge from other properties in the area.
• Make your property attractive to your prospective tenant; remember a well-maintained and attractive property will always be much more in demand than a run down property.
• Charge the correct rent, speak to the local letting agents they should be able to advise you about rent. Rent is not automatically your mortgage re-payment so if the letting market is sluggish, it may not cover your entire mortgage.
• Also remember there will be ongoing costs, contingency costs that you should be prepared for such as the maintenance of the property, periods when there might be no rent coming in

Remember property investment is a business; try to make sure you tailor your property for your future tenants and not for your tastes.

There are various mortgage lenders who have loans tailored for the investment sector. These are different if you were taking a mortgage for your own home. Some basic differences are

• There will be higher deposit usually in range of 20-25%
• Interest rates are also higher when a mortgage is taken for investment properties

Property investment is ideally a medium to long term investment. Currently the market appears to be slowing down so do not expect to get rich quick over a couple of years. It is important however to look to the future when you buy a property. For example will there be any new development nearby? Are the transport links being improved? Are new companies moving into the area? It also provides a good steady income during retirement period. However, do remember if you sell an investment property there is a capital gains tax levied on same.