Buying an investment property

As well as owner occupiers, many of our buyers are also purchasing as an investment. Whether it’s for short term or long term, if you’re looking to buy as an investment, there are a number of factors you need to iron out before you embark on your search.

Firstly, get your finances in order. Speak to a bank or mortgage broker to ascertain whether you can get finance and what amount you can borrow at a sensible rate. A buy to let mortgage will have a higher interest repayment each month than if you were buying the property for yourself, and you need to be sure that the rental payments will cover the mortgage – or you have other income to cover any shortfall and void periods.

Secondly, decide how long you’re buying for. If there is a chance you may need to sell the property in the short term, you may want to focus on fairly stable areas. If, however, you can lock away the money for a longer period of time, then you can have a bit more fun choosing riskier areas which have more scope for gentrification.

If you’re buying as part of a portfolio, you will want to ensure that you are buying a mixture of properties in different areas to diversify your property holdings. We have some clients who give us a lump sum and ask us to buy multiple properties. In these cases, we will hand pick certain areas and types of properties to give them exposure to different tenant profiles, resale factors, and so on. We’ll also usually spread out their purchases across a number of different areas.

Once you’ve found some suitable properties, make sure you do your sums accurately and prudently when weighing up the options. We always model returns for our clients on spreadsheets so they can see what each property will yield before and after costs. You will need to make assumptions on void periods and annual maintenance. It’s better to be cautious than underestimate costs as you can encounter unexpected cash outflows if you don’t. As part of your analysis, make sure that you use realistic rental estimations. We’re seeing many rental agents overestimating rents only for them to actually achieve 10 – 15% below, so don’t rely on the selling agent’s rental team, ask some independent letting agents for their opinion too.

If you have a question you’d like Jo to answer please email or tweet her @joeccles.