Investing in property? Make sure you have a strategy in your mind
Seths Estate Agents
One of the more common questions I get asked by investors is what kind of investment property should I buy?
The answer to this is not so straightforward. It all depends on what the investor's strategy is, and how long term is their plan.
For example, do you wish to buy and sell within a year, or is it a long-term investment? Do you wish to rent by the room, or let the property out as a whole? Do you wish to target families, professionals, or students?
One of the most important things to look at is what is referred to by investors as yield. This simply translates to return on investment. For example, if you were to buy a property for £120,000 and receive a rent of £6,000 per year, your yield would be 6000 divided by 120000 multiplied by 100 = 5%. The higher the yield, the better. We have some first-time investors come to our office looking to buy, say, a semi-detached property for £200,000 which will receive a rental of £7,000 a year. This equates to only a 3.5% return and does not make much sense on an investment basis.
Coming back to the initial questions, if you are looking for a short-term investment, and you wish to make a quick return, then it is important enough to be able to buy the property initially at an attractive price, and sell it within four to six weeks of purchase. This might happen, for example if it was a repossession, or if it required refurbishment works.
In terms of long-term investments, I always feel you should buy in an area which has long-term prospects. This gives you the flexibility to sell at any time should you so need to. There are many properties that seem "cheap", but they could have been on the market for a long time, and if you do need to sell it later on, you could find it a struggle, as the initial owner did.
The other thing you must consider is which group of people you wish to let it to. Although letting by the room does give an initially higher return, there is a quick turnover of tenants, and you will struggle to deduct moneys for damage as you will not know who caused the damage in the first place! Student rental is very lucrative, but be aware, there are thousands of purpose built student rooms available, so make sure you do your homework before buying.
Seths sell many investment properties, and are strategically placed at opposite ends of the city, thereby offering a variety of different properties, for different markets. We would be happy to offer free advice for any investor.