Frequently Asked Questions When Looking To Invest In Property
But I was told I cannot get a buy-to-let without having earnings or a salary of £25,000
This is very much a myth. Any decent broker can get you a mortgage on a Buy-to-let purchase if you do not have a £25,000 wage. The brokers we use are fantastic and will get you a mortgage if the property you are buying stacks up against their calculations. You do not need to have a big wage, all you need to do is prove you can survive without relying on the income from the Buy-to-let
How much money do I need to start?
It is a great question. If you were to look at a Buy To Let Property for your 1st purchase then you will need to find the deposit, the stamp duty, solicitors fees and any costs for improvements. This can seem like a lot if you do not have any money to use. However, there are lots of ways you can purchase or own the Buy To Let that do not require all this capital.
What are the financing options?
There is the traditional way of financing a purchase, with a 75% mortgage on the property, meaning 75% of the purchase price. This is the most popular way and is most often used. Your broker may be able to get 80% or even 85% against the purchase price. The interest rate will probably be higher the more you borrow but if it means you need less of a deposit and if the deal still produces a good return then you could use that.
There are other methods, such as bridging loans, Purchase Options and Vendor Financing to name a few.
I cover these in my book “The Book On UK Property” which is available on Amazon.
What are the total costs involved?
As well as the costs I mentioned above in the “How much money do I need to start?” Question, there will be, how much tax to pay on the property? Everyone has their own financial situation so you will need to use a professional like a UK Tax Advisor / accountant, but to give you some idea, you could purchase the property in your own name, in a company name or as a joint venture. All of these will have some set-up and running fees associated with them. As a guide (and this is just a rough guide not a quote) an accountant might charge you anything from £650 – £2,000 depending on the structure you decide to buy in.
We use great tax advisors and accountants, so if you need a recommendation drop us an email and we will put you in touch.
Where is the best place to invest?
Another great question and an important one. When you are looking for an investment area you will be looking for the best return on your money. So, you may have to look and investigate a few areas, do your due diligence and then settle on the one that works best for you. At the time of writing this we have looked and found that you can achieve yields of 8% – 14% in the following towns:
Manchester, Glasgow, Swindon and Swansea but of course you must do your own research.
What type of property is most profitable?
The properties that produce the highest gross income are HMOs, Houses in Multiple Occupancy. For example, a student rental or somewhere that you can rent a room in a shared house with others also renting rooms. The facilities, such as kitchen, living space and bathrooms tend to be shared in a HMO. If you are holding the property, then these tend to have more coming in.
If you are flipping, – buy, do up and sell, then the most profitable here are the houses that are in the nicest and most sort after areas.
How do I find a “great deal”?
Finding a great deal really is about doing your due diligence right and buying at the best price. Knowing the area well and the prices that houses can achieve along with the rents they can bring in, plus your costs is particularly important. Then you can evaluate correctly if your proposed purchase is or will be a great deal.
We suggest you either work with someone who has the experience you need or find a property Mentor or Coach.
What rental yield can I expect?
Properties in the UK can return yields from as little as 3% to 30% and more.
One of our clients is purchasing a property as I write, that will bring in 50% Yield.
It really depends on what you are happy with. We are always aiming for as high as possible and typically set a minimum of 10%.
Should I buy in my own name or via a limited company?
This is a question that you really must speak to a professional Tax Advisor / Accountant.
We are not qualified to give advice on this, however, in our experience working with our new property investors, there seems to be a strong case for doing the 1st one in you own name and then future ones in a company structure. This is because there are a few use once allowances as an individual you can utilise. Remember though, buying in a company name will have some associated costs . I talk about this above in the “What are the total costs involved?” Again, though I must point out we are not professional advisors and cannot give you advice on this.
What are the biggest risks?
Some of the common concerns we are asked about include falling property values, rising interest rates, and long void periods (times with no tenants).
All of these are real risks, however if you do your research and due diligence and learn how to do it correctly, then these risks are all reduced considerably.
For example, if you buy at the correct price then a falling property value will not be something that effects you.
If you stress test the numbers when you are evaluating the deal, then interest rate going up are not a worry.
If you have, again, carried out your due diligence then you are more likely to have tenants queuing up to rent your property when one leaves. We recently put a house up for rent and in less than a day we had 20 applicants. That’s the property you want to own!
What is my exit strategy?
With any investment property you must have more than one strategy lined up.
So, if the 1st one doesn’t work out you action the 2nd or exit strategy. This could be in the form that you decide to buy a HMO but after a few years there is a lot of turnover of the tenants as there may be less work in the area than when you first bought it. So, your exit strategy may be to sell or to change it to a family let and still generate income.
Is now a good time to buy?
Yes, Yes, Yes. Now is definitely a good time to buy. You might think that you should wait until the interest rates are lower, or the price of property comes down, maybe you feel that the rents are going to fall. These are always concerns, however as long as you are knowledgeable and have carried out all the research and due diligence you will have factored all these possibilities into your calculations and then be confident in your purchase. Or maybe your research may indicate that the property is not the best one to buy and you can eliminate it from the list and look for the next one.