Investing in Rental Properties
Investing in rental properties is one of the most lucrative investments you can make. Here at Breeze, we have been funding property developers and landlords for over 25 years. Forget expensive property training courses, we show you how you can do this for free.
The Importance of Financing
One of the biggest mistakes we see is people rushing to find a property before securing their financing. So, the first step in investing in buy-to-let properties is to get your financing in place.
How to Buy Property
If you’re fortunate enough to have the cash to buy a property outright, you’re in a powerful position. You can move quickly, potentially secure discounts, and buy properties in better locations.
If you don’t have the cash, you can consider bridging finance, which offers almost as much speed as cash but comes with some cost implications. The most well known method is a buy-to-let mortgage of course but Bridging offers infinite possibilities too.
To get a buy-to-let mortgage, you typically need to be on a salary of £25,000 or more, put down a 25% deposit, and have rental coverage of 125%. This means that the rent you receive needs to be 1.25 times the monthly mortgage payment.
Identifying a Good Rental Property
So, what makes a good rental property? The answer lies in combined returns. A combined return of 12% or above is an excellent level of return. This return comes from two sources: the rent coming in and the capital growth of the property. Ideally, you should aim for about 5% from rent and 5% from capital growth.
What Type of Property to Look For
Not all properties are created equal. We personally recommend staying away from flats or leasehold properties, as they can come with unexpected costs and issues. Instead, we prefer freehold properties, where you own the ground. Terraced and semi-detached properties, particularly those with two to four bedrooms, make perfect rental investments, as do bungalows because they are easily extended and converted.
Where to Look for Properties
If you have the time to invest in your search, Rightmove is one of the biggest portals in the UK, with about 83% of properties listed there. Make sure you’re looking within your price range and in the right areas.
If you don’t have the time or expertise to conduct your own search, you can ask us to help you as we do that with lots of our borrowers and investors.
How to Analyse the Property
Once you’ve found a potential property, it’s crucial to analyse it thoroughly. This isn’t a quick, napkin calculation. You need to consider your deposit, interest rate, stamp duty, refurbishment costs, and potential property management costs.
It’s essential to have a basic spreadsheet to look objectively at the data. This isn’t about falling in love with a property; it’s about ensuring it’s a good investment based on the numbers.
Building Your Power Team
Finally, you need to think about your power team. This includes a mortgage broker to secure your mortgage, a solicitor to handle the conveyancing, a contractor for any refurbishments and a lettings manager to manage the property.
Remember, you’re not just a landlord; you’re an investor. You’re putting money in, owning the asset, getting a return, and using other people to take care of it for you.
Conclusion
Investing in rental properties can be a profitable venture if you approach it with the right knowledge and strategy. If you’re new to property investment, this guide should serve as a solid foundation for building your rental portfolio. Remember, the key to success in property investment lies in understanding the numbers, securing the right financing, and building a strong power team.
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