How to Invest in Property
From finding your initial investment money to making the most of existing buy-to-lets, we’ve taken a look at different ways of how to invest in property.
Financing your investment
You could pay cash up front, but with low interest rates, it makes sense to take advantage of the mortgage deals on offer. That way you’ll have funds put by for future investments.
Most investors start their investment portfolio with a mortgage of one sort of another. There are plenty of online comparison sites to help you review the best rates currently available for fixed, tracker and discounted mortgages, but it is usually best to consult a broker.
A buy-to-let mortgage works differently to a residential one as your application is assessed on potential rental income and your own finances. The mortgage lender will want to be satisfied that payments can be maintained if interest rates should go up. A current industry standard test is a rate of 5.5% and the rental value must be 145% of that monthly figure (less if using a Limited company).
You may also consider a bridging loan as short-term finance for buying a property before your longer-term funding comes through. They’re commonly used by investors to 'bridge' the gap between the sale of one property and the completion date on the purchase of another.
Bridging loans offer quick finance but incur higher interest rates than traditional mortgages.
Non-traditional financing options
Not so traditional financing methods include peer-to-peer lending and crowdfunding.
Peer-to-peer lending (P2P) has been on the increase in recent years. The investor decides on the type of borrower they would like to lend to and at what rate. Borrowers can apply online and are matched with lenders according to their property plans and credit profile.
Crowdfunding platforms such as Crowdfunder, the UK's largest crowdfunding platform, allow investors to put money into loans to landlords or property companies. The investor can join with a group of people to form a company specifically created for this particular deal.
Sites like this can provide cash injections to property investors, subject to meeting the funds requirements.
Renovate existing properties
If you want to gain extra profit from your existing portfolio, it’s a good idea to renovate a house or flat to generate additional income. Refurbishments can range from a simple paint job to converting rooms to accommodate multiple occupancies.
Creating additional living space is an ideal way to increase the rental return on a property. You could change a floor plan to include two separate living spaces or add an annexe to a house to create a ‘granny flat’.
Plus, if a house on one title can be advertised as two separate residences, this dual occupancy can significantly increase your cash flow.
Look around for bargains
If you think an area is on the up, because of new investment to reinvigorate a town or new transport links, it could be a good idea to buy and wait for property prices to increase.
This generally means looking further afield than the capital and other inflated hotspots and checking out locations where properties are currently cheap but likely to rise in the future.
Find out more about how to invest in property from our property mentors
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