Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.
Property
Making money from property
The UK property market has seen a very strong performance in the past years which has prompted people to buy more properties as investments. Buy to let mortgages being the mortgage of choice. The benefit of investing in property will in most cases achieve excellent capital gains when it comes time to sell the property. Budgeting is essential when it comes to property investment. Overestimating the income is a very common mistake and expenses like maintenance and ongoing costs of ownership must be taken into account when looking at investing in property.
Maintenance is vital
Keeping your investment property in good condition is vital if you wish to see a good return on your investment and wish to retain good tenants. Maintaining your property is vital in this low-interest rate environment that tempts more tenants to become homeowners and more developers to bring competing properties on to the market. Consequently, prospective owners of investment properties need to budget for more than the monthly bond repayment and, perhaps, the sectional title or homeowner association levy. As a first step owners should inspect their investment properties with 'a critical eye' and try to anticipate what might need repairing or replacing in the next year. The roof may need to be waterproofed before the next rainy season, for example, or old guttering may need replacement. On the interior, the plumbing or wiring may need fixing, walls may need repainting and carpets need replacing. Check for gas leaks and make sure the central heating is in full working order, this should be checked on a regular basis. Next, you need to get quotes for what all this will cost and budget for that expenditure spread over the next 12 months. You should also plan to put aside some funds for unexpected or emergency expenditure.
There will be bills
Other ongoing costs that you may need to take into account are insurance and council tax, and if you own several investment properties, you should also budget for property management fees or maintenance staff wages and taxes, legal and book-keeping costs and advertising for tenants. To be safe, you should also factor in period when each property may be vacant. It is only once you have totalled all these operating expenses and subtracted them from your projected rental income, that you will know the net operating income of your property. And if you then subtract your monthly mortgage payments and levies from this amount, you will be able to calculate the actual annual return on your money.
The buy to let market
The Buy to let market, one of the great success stories of the last ten years, has produced a growing band of happy investors buoyed up by the delights of solid capital growth and respectable rental incomes.It is, however, a cyclical market and one as subject to the laws of supply and demand as any other sector of the economy.
Experts will advise that prospective investors should take pains to carefully research the local market and view the business as a medium to long term project. Viewed in that light, it remains a very solid investment and will continue to grow in popularity if the interest rate stays as low as it has been in the past.
