According to research conducted by HSBC, over a third (36%) of the UK invests their money in some way. This might include stocks & shares, mutual funds, bonds, or real estate. That leaves a huge 64% of the population that isn’t building their wealth & capital through investments!
If you’re one of the 64%, then carry on reading.
Here at Valor Properties, we have an abundance of experience helping people like you to invest their money into property, which is one of the safest types of investments.
Whether you’ve never invested before, or you’re a seasoned landlord, we can help you – from start to finish!
Our comprehensive guide to investing in property will help you create your very own property investment strategy, and hopefully equip you with most of the knowledge that you’ll need to get started…
What Are Investment Properties?
Investment property refers to any property or permanent structures purchased with the intention of earning a return in some way. You may use the property to generate rental income, or you might hope to make a return when selling your property in future.
A report in 2015 revealed that buy-to-let property is an asset class that performs better compared to many other potential investment options such as government bonds, stocks and shares, commercial property and cash ISAs.
Apart from being one of the safest ways to invest, property also:
- Offers hands-off solution for creating passive income
- Is considered the least risk-averse option
- Protects your money against inflation
- Generates consistent results in both the long & short term
Why Should You Invest in Property?
Investing in property comes with a wealth of benefits, some of which you may not have realised before:
Return On Investment
To put it into perspective, last year the average UK resident had approximately £6,760 in savings. The average easy-access interest rate was only 0.23%. As a result, a typical saver would have to wait a shocking 16 months before spending their interest earnings on a £20 takeaway.
Here at Valor Investments, we guarantee a minimum 15% ROI on all property investments. So, why wouldn’t you want to make your money work harder for you?
Diversify Your Investment Portfolio
Investments come with a certain amount of risk, and putting all of your eggs in one basket means that you are only increasing that risk. A well-diversified portfolio means you’ll be less impacted by sudden changes in the market, protecting your money in the long run.
If you already invest in things like stocks and shares, why not add property into the mix? As we mentioned earlier, property investments offer higher returns over the long run, even if there are ups and downs in the market.
Steady Cash Flow & Long-Term Security
If you’re saving up for your retirement, or if you are simply wanting to top up your monthly earnings, property investments are a great way to do this. You can rent out your property to tenants, whether commercial or residential, earning yourself a steady monthly income.
With the additional income, you can either put this aside for the future or use it to fund your next investment property.
Investing in property is a great way to protect against inflation or market dips
Property can serve as a form of passive income, boosting your net worth overall
Property offers the highest return when you work with experts, so get in touch!
Things To Consider Before Investing
Is investing right for you? What type of property do you want to invest in? How much money should you invest? All of these questions (and many more!) should be answered before you start your investment journey. Here’s what you should consider:
Personal Aims & Objectives
Start with your personal goals. Unsure of what these are right now? Think about these questions:
- Do you want this to be a hands-off investment or something that you want to be actively involved with?
- How much profit would you like to make per month/per annum?
- Do you want this as a monthly income top-up or to be your entire income?
- How much risk can you afford to take on? How much do you want to take on?
Financing Your Investment
Even if you have enough cash to buy your property outright, this may not be the smartest financial decision, depending on how much risk you want to take on. Instead, consider a mortgage.
The process for buying an investment property is slightly different compared to buying a residential property. If you aren’t a cash buyer, which many aren’t, then you’d take out a residential mortgage to buy your house. If you are buying an investment property, you’d instead go for a buy-to-let (BLT) mortgage. They are similar in a few ways, but there are also a few key differences:
|Residential VS Buy-To-Let Mortgage|
It isn’t as simple as being paid rent and deducting your mortgage costs. It is important to be aware of the other costs you might incur as a property investor:
- Stamp duty, if you already own a property
- Income tax on your rental (20-45%, depending on earnings)
- Estate agent & property management fees
- Capital gains tax if you sell later down the line and your property value has increased
- Ground rent (if applicable)
- Repairs & maintenance costs
- Landlord insurance
If your main goal is ROI, you may be willing to reduce these costs by taking on things like admin, repairs, or doing your own tax returns. On the other hand, if you want this to be a long-term, hands-off investment, you may hire someone else to do these tasks.
Time & Energy Commitment
You may want this to be your next career path, or are you just looking for a little extra cash alongside your full-time job? Your property investment strategy should be developed around your time commitment.
If you are short on time, maybe don’t consider investing in a large HMO property. However, if you are doing this full-time, large family homes or shared student houses may be worth considering.
For those of you looking for a complete turnkey investment, with little to no time needed from you, consider a property management company, like Valor Properties.
Your personal aims & objectives will dictate the type of property investment that you should go for
Even if you have enough cash, it doesn’t mean that you should invest all of it straight away
Different types of investment properties will require a different amount of time, money, and commitment from you
For more information, read one of our recent blogs, 10 Things To Consider Before Buying an Investment Property
Types of Property Investment
Being a ‘property investor’ looks different for everyone, and there are many ways that you can generate passive income from the property. For example:
- Holiday homes
- Rental income
- Purchasing a neglected property
- Finding a bargain
- Converting a property into an HMO (house of multiple occupation)
We deep dive into some of the most popular property investment options below:
Traditional buy-to-let is arguably the safest type of investment. Usually, these properties require little-to-no refurbishment, so usually they can be let almost straight away. Not only that, but buy-to-let properties offer a stable, predictable monthly income with generally no cash flow problems for yourself as a landlord.
If you spot a bargain house that needs some work, you could flip the property in hopes of making a profit. Usually, these houses are super cheap, so there is an opportunity to make a lot of profit, however, property flipping does come with risks. You might find that the cost of doing up the house is higher than expected, which could eat into profits. You may also have to deal with planning permission from your local council, which may limit how much you can do with the property. Once renovated, you could sell the home outright or rent it as you would with a buy-to-let.
Much like a buy-to-rent property, a build-to-rent property is a purpose-built property with renting in mind. They are designed for modern living with a range of luxurious amenities, so they are very attractive to prospective tenants. Saying that, build-to-rent properties usually come with a hefty price tag, which may not offer a great ROI.
This is when you buy a piece of land, and build a property from scratch, with the intention of renting it out or selling it for profit once complete. Although this type of property investment is a lot of work and money up front, you do get the freedom to create whatever you like. You may create an HMO, a small block of flats, or a beautiful family home.
Traditional buy-to-let homes offer a safe but steady return on investment
Flipping a property or building one from scratch requires a lot of time and money investment upfront, but can reward you with a large lump sum of profit at the end
The type of property investment that you make should remain in line with your personal and financial goals
Property Investment Risks
Property investments can offer incredible opportunities for you to build passive income and diversify your portfolio, however, if you are an investing beginner, it is really important to understand the risks:
Unstable House Prices
Particularly in today’s market, with Brexit looming, no one can be 100% certain that the value of the property market will increase, and it could even do the complete opposite.
Although there may be a volatile market right now, you must remember that property investments perform best over the long term. This means that even after a dip in house prices, the property will likely recover well and continue to deliver value.
The geographical location of a property is crucial in determining your return on investment. If you choose an area with no schools, little to no transport links or job growth, or with high rates of crime, to name a few, you may find your property vacant for large periods of time.
We’d recommend consulting with a property expert when choosing the location of your property investment. They’ll have extensive knowledge of the up-and-coming areas that can generate a high-rental yield, as well as open the doors to off-market investments that you would have never otherwise found.
Our property sourcing agents can help you find investment opportunities that are below market value (BMV) but return the highest possible rental yield. We have in-depth knowledge of the best areas in Leeds, taking into account location, business opportunities, and schools, to name a few. Contact Valor Properties via phone or email for more advice and information.
Tenants can make or break your property investments. Bad tenants might damage your property, pay rent late or not at all, or they might not follow certain property/community rules. Each of these can negatively affect your cash flow, and greatly increase time needed from yourself in order to sort these issues.
If you work with a vetted estate agent, they’ll do a comprehensive background check on all of the potential tenants before they move into your property to minimise any risks. Checks will look into:
- Income & savings, including a credit check
- Employment history (they may also ask for an employer reference)
- Rental payments history (again, they may ask for a landlord reference)
- Proof of address
- Proof of identity
- Right to Rent certification
As with any investment, there are risks, but there are steps you can take to minimise them
Carefully choose the location of your property, whilst also keeping in mind where works best for you
Fully vet each tenant before signing a lease agreement
Work with an accredited estate agent, as they have extensive experience dealing with problem tenants – saving you the headache (and lots of paperwork!)
By working with a dedicated property investment team, you gain access to market-leading knowledge, minimising your investment risk
I’ve Bought My Property: Now What?
We discuss all the things you need to consider in order to get your buy-to-let property generating income for you:
Landlord Insurance & Licenses
First things first, you must ensure that you have all of the legal protection and licenses required by law in place.
As of October 2018, landlords are legally required to have a license if they rent a property to five or more people from two or more separate households. So this would mainly apply to HMOs (houses of multiple occupation), but you won’t need to worry if you are renting to a single person, a couple, or a family.
Landlord insurance is optional, but it is recommended. This type of insurance not only protects you against damage from tenants, but can also protect your investment in the event of natural disasters, or broken appliances.
Property Development & Refurbishment
Whether it’s a couple of strategic updates for the upcoming rental season or a complete makeover of a failing property, property refurbishment and property development is a great way to increase your NET rental yield and the ROI of your investment.
You will want to make these changes before your rental property hits the market, allowing you to get a new valuation before any tenancy agreements are signed.
Lettings & Tenants
The next step is actually getting tenants into your property. Utilising an estate agent is the best way to do this, as they’ll handle everything from the marketing to paperwork, to completing tenant background checks, and pretty much everything else. If you want to DIY this part, find tenants by marketing your property on:
Although they aren’t usually as successful, you could also try these free sites for marketing your property:
Valor Properties is one of the most trusted and recommended estate agents in Leeds & Bradford. If you want a professional estate-agency service, with a team that’ll get things done quickly and efficiently, don’t hesitate to get in touch.
Buy-to-let properties require ongoing maintenance. This usually includes replacing broken white goods, plumbing, electrics, or light fixtures during a tenancy, but it also includes freshening up the property in between tenants. This might include deep cleaning, repainting walls, or replacing carpets.
You could do these yourself, but you need to be available at unexpected times to be able to sort these issues. Instead, consider a property maintenance company to do this for you. They’ll have a team of plumbers, electricians, handymen, and cleaners on hand whenever you need it, saving you hassle and money in the long run.
Valor Property Maintenance is part of the Valor Property Group in Leeds, Bradford & West Yorkshire. If you’re looking for Leeds or Bradford property maintenance, we’ll provide you with a professional and efficient service.
You must stay organised with your finances as a property investor – if you don’t, you could risk unexpected fines from HMRC or your local council. You must be able to keep track of your mortgage payments, rental income, and any costs incurred when managing your property.
We’d recommend that you hire a specialist accountant to help.
Unsure where to start? We can help! At Valor Properties, we have an accountancy team specialising in property investments. We can help you with tax returns, rental calculations, and so much more. Get in touch for a free consultation.
There are a lot of moving parts when it comes to investing in property, but it is 100% worth it in the long run
Rely on the experts around you – this will save you time and paperwork, all whilst minimising the risk of mistakes
Working Out Gross Rental Yield & Net Yield
Once you’ve got your buy-to-let property up and running, you must ensure you are getting a good ROI. You can do this by working out your rental yield and net profit:
How To Work Out Gross Rental Yield On a Property
Divide your annual rental income and divide it by the total property value. To get a percentage, multiply the amounts and divide by 100. For example, if I own a property worth £200,000, and I generate £500 of rental income per month or £6,000 per year, the rental yield would be 3%.
(Rental Income / Property Value) x 100 = Gross Rental Yeild
Remember, rental yield (or gross yield) is not the same as profit or return on investment, as it doesn’t take into account the costs of running a property.
How To Work Out Net Yield
Net yield is the profit that you make on a property, worked out per annum. Find your rental yield by taking the annual rental income, deducting yearly costs, dividing it by the total purchase price of your property and then multiplying that figure by 100. Following the example above, estimating that my costs are £1,000 per year, my net yield would be 2.5%.
(Rental Income – Property Costs) / Property Value x 100 = Net Rental Yield
Net yield takes into account the following expenses:
- Property maintenance costs (replacing furniture, painting, decorating, cleaning, etc)
- Landlord insurance
- Mortgage & mortgage interest
- Property management fees
- Legal fees
- Accountancy fees
Get Started – But Not Without Our Experts
Consider property management for passive income with a guaranteed ROI.
We’re a team of passionate property investors, who want to help you generate a lucrative portfolio, creating a stream of passive income. We offer a complete turnkey solution, creating a hands-off investment that helps to build your wealth, without taking up all of your time.When you work with Valor Properties, not only will you get tailored, expert advice, but you’ll also gain access to:
- Our wealth of knowledge about Leeds & the wider Yorkshire area
- Access to off-market property and investment opportunities
- Access to our extensive network of property professionals
- A suite of services including refurbishment, development, property sourcing, estate agents, day-to-day maintenance, and specialist property accountants
When you invest with us, you have the option of a fully managed property as our services cover the whole lifecycle of your investment. Sit back and relax with the knowledge that everything is under control.
Frequently Asked Questions
Who Pays Council Tax On a Rental Property?
Tenant(s) are required to pay council tax on the property they rent, however, if your property is vacant, as a landlord, you are liable for paying council tax.
Do You Pay Council Tax On An Empty Property?
Unfortunately, you have to pay council tax if your property is vacant. Saying this, you can approach your local council borough, explain your situation, and they could offer you a discount. The % discount they decide to give you, if any, is entirely at their discretion.
Can You Deduct Mortgage Interest On a Rental Property?
You used to be able to deduct mortgage interest from your total revenue, which would reduce the amount of tax that you are required to pay on profit. However, this is no longer allowed for landlords across the UK. Instead, landlords are allowed a 20% tax relief on their mortgage interests.
How Much is Capital Gains Tax On Property?
Gains tax on property is 10% or 18% on residential property, depending on whether you pay a basic or higher tax rate. For commercial properties, which aren’t covered by private residence relief, you are required to pay 18% or 28%.
How Much Deposit Do You Need For Your First Buy-To-Let?
You need between 20-25% of the property’s value saved for a buy-to-let deposit, as banks will often only offer a LTV (loan to value) ratio of 25%/75%. So, for example, if you want to purchase a house worth £200,000 you need around £40,000 – £50,000 saved.
However, the bigger the deposit that you have, the less interest you have to pay, which could significantly increase your return on investment in the long run.