Homework, the bane of most students’ lives, often set as a piece of research which is handed in the next day or a few days after.
You may have witnessed your own relatives bemoaning homework tasks, but, like many things in life, you know that research pays off.
Especially with property.
When done correctly, investing in property can be hugely rewarding, which is why doing your homework before jumping in is important.
Your research may show you that you could invest your money in an investment fund or a fixed rate savings account with ease, but you can’t then start a refurbishment on these two accounts and set about adding to their value, like you can with property.
So dig out the calculator and do some sums.
You need to write down what your budget is, the cost of homes you can afford and the rental yield to be expected. You can then do more homework on mortgage finance.
Buy to let mortgages are as competitive in terms of interest rates as normal residential mortgages, but with one major difference – they require a larger deposit. Typically, a maximum LTV on an investment property is 75%, leaving you to fund the remaining 25%. If you have a bigger deposit, interest rates (and mortgage fees) often drop.
Don’t forget other fees either: letting agent fees, maintenance costs, expenditure on furnishings, safety equipment and insurance for buildings contents, rent and liabilities.
There’s other idiosyncrasies too about buy to let finance – you can get a BTL mortgage up to the age of 85; and interest only mortgages are more readily available, which allow you to use projected funds, like a pension or lump sum, to clear the capital debt.
Insurance is even more important with BTL investments – as well as the usual suspects of contents and building, you may want to consider paying for extras like:
• Legal cover (for recovering lost rent)
• Emergency repairs
• Compensation claims if a tenant is injured
If you’re building an investment portfolio, you can usually insure them under one policy – again the key is, do your homework.
The outcome of doing your homework should arm you with a route forward and ensure a smooth transition through the investment process.
Download our Franchise Prospectus to find out how Sourced can help you to grow a successful property business.