Buying properties to let them out may start as a way of diversifying your investments or even as a hobby. However, it is also a type of business that can require a large percentage of your time and resources to get right. Is it the type of business decision that makes sense?
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Look at the Property Market
The biggest factor in determining whether a rental property turns out to be a success is the overall performance of the property market. You will enter into this business looking to try and earn a big profit due to rising prices, but you can’t be sure that this will happen during the time that you own a certain property. How can you lower the risk of losing money if the market suffers a downturn?
You should start by investigating the property market in the area where you are thinking of buying. Take a look at the historic prices as well as any planned developments or other issues that could affect prices in the future. Is there a housing shortage, or are new constructions planned? You will also want to look at factors that affect the demand, such as the presence of large business premises or colleges.
Properties are best viewed as being a long-term investment, as the price tends to vary in the short-term but house prices are generally expected to rise over a period of a few years. Therefore, buying a house is a better idea when you know that you can can hold onto the investment until the market rises.
Consider the Rental Income Potential vs Mortgage Costs
The other part of the business is the way that the monthly rental income is used to offset the cost of the mortgage. In an ideal world, the rental income pays the full cost of the mortgage and any other expenses that crop up.
You will see the term property yield or rental yield used in this respect. It is a number that expresses the annual total rental income as a percentage of the total value of the property. The higher this percentage, the sooner you can hope to recover the purchase cost through rental income.
Keeping the mortgage costs low also helps. You can get a fast mortgage decision on a comparison site like Trussle, where deals from major lenders are instantly compared on your behalf. Be sure to tick the buy-to-let option when filling in your initial details, to ensure that you see the right deals. Sites like this will look at thousands of deals available to find the one most appropriate for your personal ambitions. With many of its systems integrated online, you should be able to get a decision within five days. In the world of commerce, time is money so a quick turnaround is always necessary.
Take Your Future Needs Into Account
As suggested earlier, the property business is most suitable for a long-term investment approach. If you think that you will need the money sooner rather than later, it might not be the best way of using your resources. You might also find that you need to spend more time than expected dealing with tenants, contractors, and so on.
Yet, if you are looking to grow your money with a type of investment that tends to come out ahead in the long run, buying a property to let it out can turn out to be a great business decision.