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How to make £166,500 in 15 years
According to research from the Centre for
Economics and Business Research (CEBR), the
average cost of a home in the UK could be
£300,000 by the year 2020. Currently that figure
stands at around £157,000 in 2005 which
represents an increase over the next 15 years of
91%.
This figure of £300,000 is achieved by the
economic forecaster basing its prediction on the
ever increasing population compared to a slower
production of house building. And we can’t
ignore that as the result of higher divorce
rates there are more fragmented families than
ever before needed multiple properties and the
mortality rate clearly indicates that people are
living longer than ever too. Reports also
suggest that the average age of a first time
buyer is now up to circa 30yrs which
demonstrates that these people can only be
requiring rental property too. As with many
commodities, it is the result of lower supply
and higher demand that will push up these
prices. It is a well know fact that there is a
large housing shortage in the UK which is
resulting in more and more landlords taking
advantage of this opportunity to provide good
quality rental stock.
With buy to let residential
investment property,
the maximum loan you can apply for is generally
85%. Based on an average value property in 2005
of £157,000 this would require you to put down a
deposit of 15% £23,550 subject to valuation and
rental cover which can vary between 115% to 130%
in most cases.
Potentially over the next 15 years, this one
investment could realize a return of £166,550.
This is based on selling the property at
£300,000 less the loan of 85% of the property
value in 2005.
Over previous years there have been times when
property has declined in value and other times
where it has significantly increased in value
but a good property investor will clearly see
the benefits in both a rising and declining
market and will utilize the facilities of a good
buy to let mortgage
provider to assist in maximising their
opportunities at both times. For example:
During a rising market, a property investor may
decide to use this window of opportunity to
release some of the equity realized in the value
of the property to use at a later date for
additional property investment. So why not use
those funds immediately to re-invest in other
properties you ask? Well, as with most things
in life, what goes up most come down so instead,
the landlord will wait until the market has
re-stabilised itself or experiencing a decline
before committing to further purchases. At this
point, they will then use this window of
opportunity to purchase lower priced property
and the circle continues. That is why property
investors are in it for the long term and why
they see the market as being profitable to them
in all conditions. And when you consider that
property prices only need to increase by an
average of 4.4% year on year, it is easy to see
why this type of investment is so achievable.
Successful property investors will do a lot of
research on areas that they believe will become
property hotspots
and areas which are less likely to perform.
There are many areas experiencing high levels of
growth and financial investment with a lot of
regeneration programmes in place or planned in
the future. Even by simply monitoring
publications such as Construction News can give
a good indication of where new commercial
premises are being built which can be a good
indicator of new businesses moving to the area
which it turn can lead to an increase in demand
for property locally.
It is the general consensus that interest rates
have stabilised and there is even speculation of
a drop but either way, they have been steady for
a good number of months now. Slower capital
growth does result in buyers having to put more
effort into managing and developing their
portfolios. And more importantly making a profit
from property. Buying property at discounted
prices can be done but you must do your homework
to make sure they are genuine discounts and
incentives. And don’t forget that in a slowing
market, vendors will be more likely to listen to
your offers. Albeit if they are a bit cheeky! In
particular, you can use the negative press that
is often surrounded by the property market to
your advantage. For example when the media are
circulating stories of a dropping property
market, then vendors are even more keen to
listen to your offers……..
How to Get Started in Buy to Let
· Do
as much research as you can.
· Find
out what properties are really selling for. This
may differ from what they are being advertised
for. A good way of doing this is by contacting
estate agents and researching on the internet. A
good way is to look at property house price
websites. For example:
OurProperty.
· Find
out What is the level of demand for rental
properties in the area.
· Do
a Test Advert before you’ve even bought a
property in the area you are considering. See
how many enquiries you get and that will give
you a good idea of the demand before you have
even committed to a purchase and it could cost
you from as little as £30. A lot less than a
good few thousand pounds.
· What
type of property is most in demand for rental.
For example, if it is a university city, then
the demand for shared student accommodation may
be much higher than property for professional
sharers.
· Find
out what rent is being achieved on those
properties and the likely time to get the
property let out. Speak to letting agents and
local businesses that may be letting properties
already in the area.
Raising deposits for your
investment properties, may be easier than you
think by releasing equity from any of your
existing properties—Ask a
Buy to Let Expert How.
So how Do you know if you have
bought a good investment
Well there is always an element of risk but
providing you follow the main logic you should
eliminate most of them. It is also important to
make sure you continue to review your buy to let
mortgage funding on a regular basis as this can
have a big impact on your success and cash flow.
As we have said above, the property market can
rise as well as fall so providing that you have
some cash funds in the bank to help you through
any tougher market conditions then you could
reap the rewards in years to come. But it’s
important that you calculate these carefully
into your projections to ensure that whatever
funding you may need to input into the
investment property
that it will be outweighed by the eventual gain.
Providing that you are buying a good quality
property in a good area with strong rental
demand then it’s worth considering. Don’t just
buy a property because it is cheap. You might
buy a property at a very discounted price, but
if you can’t let it, you could find yourself
covering the
buy to let mortgage
payments for
months to come which will see a big dent in your
profits. Find out why it is cheap. Is there an
increase in crime in the area, have plans been
submitted for a large industrial unit to be
built behind the garden etc, etc. Do your
research. And don’t be afraid to develop a
property for profit. Buying at the right price,
in the right area and doing the right renovation
on the property, can also see you return a
decent profit. Re-financing the property on
completion and letting it out could give you the
best of both worlds. Find out more how this can
be done by speaking to a
buy to let expert.
Having taken into account all the considerations
above, to calculate if it is a good investment,
you need to ensure that your annual rental
income exceeds the cost of your monthly
buy to let mortgage
repayments and maintenance costs. And it is more
likely that your annual rental income will be
stronger if you select an investment property in
area with a strong and growing rental demand as
it is less likely that you will experience
rental voids and be supplementing the monthly
buy to let repayments.
So in conclusion the property
market is likely to remain a prime choice for
property investors as long as they are will to
commit to the long term and select good quality
rental property.
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