Many Chinese individuals immigrating to the UK are keen on purchasing properties in the UK, but many also struggle with investment decisions after buying a property. In fact, investing in rental properties in the UK is a good choice. The following will introduce you to the top 10 tips for investing in rental properties in the UK in 2014.
1. Conduct Thorough Market Research
If you are renting a property for the first time, you need to clearly understand whether this is the investment method you want. If you have friends with experience in this area, consulting them can be helpful.
2. Choose Areas with Growth Potential
Areas with growth potential do not necessarily mean the most expensive or the cheapest. Growth potential means that this place is desirable for people to settle down, which can be based on various reasons.
Which areas of your city are particularly attractive? Is public transportation convenient? Are there good schools? Where do students want to live?
These are questions you need to ask yourself first. Although it sounds simple, they are key to the success of renting properties.
3. Crunch the Numbers
Before viewing properties, it is best to take out a pen and paper and think carefully about the price you are willing to pay and the potential rental income. Property investors generally believe that rental income can cover 125% of the mortgage, and some loans now require a 25% deposit.
The best rental property loans have very high management fees. Once you have the loan rate, you also need to consider whether the property will be vacant. These are all issues to consider when taking out a loan.
4. Gain Sufficient Experience Before Committing
Remember not to walk into a bank to get a loan directly. It sounds obvious, but many people do this, which is why banks can make so much profit. First, check the background of loan providers online, such as BM Solutions, Skipton BS, Nat West, Woolwich, Coventry BS, Platform (part of Co-op Bank), and Accor (part of Yorkshire BS). You can also ask loan providers for more information, but that does not mean you have to follow their advice.
5. Envision Potential Tenants
Instead of imagining the property you want to live in, think about which potential tenants can help you maximize your rental income.
If the potential tenants are students, the property needs to be simple, clean, and not luxurious. If the potential tenants are young professionals, the property should be modern, have character, but not be overly flashy. If it is a family, they will have many household items and may need an unfurnished property. Remember to allow potential tenants to leave their own mark on the property, such as pictures on the walls, photos, or the ability to move unwanted furniture. This way, tenants are likely to stay longer, which is the best news for landlords.
Also, remember to set up some insurance measures to guard against rental arrears, such as insurance.
6. Don’t Be Overly Ambitious: Remember the Yield
When comparing the value of different properties, remember the yield: the ratio of annual rental income to property price. For example, if a property is worth £100,000 and the annual rental income is £20,000, its yield is 5%.
Rental income should be key to investing in rental properties. Many rental property loans fail due to interest rates, making it difficult to repay on time. If your rental income can exceed the interest growth, then the loan plus agency fees must help you profit.
7. Think Deeply
Many rental property investors wish to buy properties near their existing homes. However, your own area may not be the best investment choice. While being close to your residence can be convenient, if you use an agency, they will help you keep an eye on these matters.
Cast a wider net and look for well-regarded neighborhoods, especially those with friendly neighbors or renowned universities. If a neighborhood is currently average but has growth potential, it is worth considering. Some older neighborhoods can be profitable by buying in at a low price. Always remember that the purchase price must be low enough, and your costs need to include renovation and maintenance expenses.
8. Don’t Get Ripped Off
Like first-time homebuyers, first-time rental property investors can negotiate. If you do not need to sell a property to buy one, then you do not face the risk of buying and selling. This can be a significant bargaining chip, so try to keep the starting price as low as possible and avoid being ripped off on the price.
9. Understand the Risks
Before making any investment, we should be clear about the potential risks. Property prices may plummet; are you prepared to continue investing? If the investment fails and you cannot continue the loan, how will you cope?
Even in more popular areas, many properties remain vacant. Before investing, it is essential to investigate whether the property has been vacant for more than two months. Most properties require repairs, and many issues may arise during this time. If your bank savings are insufficient to cover the costs of significant repairs, such as a new hot water system, it is best not to invest yet.
10. Consider the Responsibilities of a Landlord
Purchasing a property is just the first step; the next consideration is the rental issue. Will you manage it yourself or through an agency? Using an agency means agency fees, but they will handle all the troublesome matters for you, such as blocked drains, power outages, and so on. Managing the rental yourself can save you some money, but you will need to sacrifice your weekends and holidays to handle all emergencies, including property viewings, advertising, and repairs.
