Five tips to help you make the right property investment decisions

Property investors choose to invest their money into the property market rather than stocks and shares because it is objectively a ‘safer’ route for their investment. After all, the property market is buoyant and unlikely to have any significant crashes. And even if prices dip, the property is highly likely to regain its value later.

But no investment is ever failproof.

Whether you are investing in a buy-to-let purchase or a buy-to-sell property, it’s important to undertake due diligence to ensure that you make the right investment decisions. Failure to do so could lead to escalating prices and a significant hit on your profit margins.

Here are five tips to help you make the right decision before investing in property.

Some buy to let mortgages are not regulated by the Financial Conduct Authority.

Tip #1 – Be clear on your long-term planning

Many property investors start their property portfolios by accident. They may have come into a generous sum of money and felt that property was the most secure way of looking after their money. As with any investment, you should always be clear about what you are trying to do and your long-term outcomes. Are you using the property as a way of generating a second income, or is this something you want to use as your full-time job? Do you want to invest in property so that you can have a house or a flat to secure your children’s future? How do you plan to pay off the mortgage at the end of its mortgage term?

Think carefully about what you want to do. For example, it would help if you created a concrete business plan that will outline how much capital you have to spend and plan to create a profit. In addition, you may want to set yourself some achievable goals to keep yourself accountable.

Tip #2 – Look beyond the property particulars

If you see a property that you think is a bargain, it may be tempting to invest, particularly if you want to benefit from a buy-to-let mortgage. But before you do anything, you need to conduct your research. As a potential property owner, you need to look at more than just the property particulars. You may need to consider who your potential rental audience could be. Would you be aiming at long-term renters, perhaps those with a family? Or would you be looking to capitalise on short-term contracts that have a higher risk but could potentially be more lucrative? If you’re near a university, could you rent to students?

You will need to look at the potential rental yield. How much can you charge in rent, and how does this compare to your mortgage repayment options? How do you plan to cover any repayment charges when you have no renters in situ?

You also need to factor in contingencies and risk planning. For example, what could derail your buy-to-let investment? For example, pre-2020, flats were considered a solid buy-to-let investment. But the coronavirus lockdowns caused a demand in larger properties/those with access to outdoor space, making flats and apartment living far less desirable than before.

Our Mortgagemove advisors are experienced in working with buy-to-let investors. We know what mortgage lenders want to see in their buy-to-let applications. We can use our expertise and inside knowledge to help you make the most of your investment. Please phone us on 0333 005 0333 to find out more.

Tip #3 – Have you considered the project management implications?

If you’ve ever watched Channel 4’s Grand Designs, it can be tempting to think that it’s easy to buy a run-down property and renovate it to make a profit. Buy-to-sell may seem like an effortless way to make money, but you should carefully think about how you plan to manage any full-scale renovation.

With a buy-to-sell investment, you will likely need to have a substantial upfront deposit. Mortgage lenders want to lend on habitable investments, so you can expect to need at least 25% of the funds upfront. Beyond this, you will need to have money to pay for the renovations – especially if it requires complex building or electrical work. Do you have enough money available to pay for tradespeople? Have you got enough spare cash to make deposit payments?

You will need to consider how you will project manage the renovation – how can you ensure that all budgets are adhered to and meet timescales and deadlines? You may be tempted to do it yourself, but this could prove impossible if you work full-time. The longer the renovation takes you, the more your costs could spiral. It would help if you were on the ball to make sure that everything happens as scheduled; otherwise, you run the risk of your profit margins dwindling at a rapid pace.

Similarly, you may need to factor in maintenance costs with a buy-to-let investment. Being a landlord requires a lot of effort – you may choose to hire an external letting agency to manage the daily activities on your behalf, but this is at an additional cost.

We take the time to discuss all of these items during our conversations with our buy-to-sell and would-be buy-to-let investors. We ensure that our clients are fully informed and consider all implications before taking out any property investment mortgages.

Tip #4 – Create a detailed track of your income and expenditure

Buy-to-let and buy-to-sell are good investments with high earning potential. But if they are not managed effectively, you can quickly lose a lot of money.

The key to successful property investment is to know exactly how much money you have to spend on the capital purchase of a property and what money is left over for updates and renovations. Therefore, you need to be clear on your income and expenditure and know what you have available to use before you start.

Our Mortgagemove advisors can take you through the different repayment options available, and we can explain how different mortgage terms and interest rates can impact your monthly outgoings. Once we know how much you have left available, we can help you figure out your budget for ongoing costs.

Tip #5 – Consider and compare the potential outcomes from your property investment

As part of your due diligence and pre-purchase research, you need to be clear about what profit you expect to make from your investment. For example, how much do you expect to sell your buy-to-sell property after investing in your renovations? Or how much income can you anticipate from your rental income?

Before investing in property, you should take financial advice to confirm if this is the right approach. To know the success of your property investment, you need to compare it to what you could make via alternative investments. Think carefully about how much you could potentially earn through investments such as stocks and shares or even premium bonds and ISAs.

You should always seek advice from a qualified financial advisor who can offer you advice on how you can make the most of your money.

Mortgagemove specialises in buy-to-let and buy-to-sell property investments

If you’ve done your research and you’re ready to become a property investor, then please phone our freephone mortgage advice line on 0333 055 0333, or text ADVICE to 82228. Our trained and knowledgeable mortgage advisors can answer any questions you have about buy-to-let and buy-to-sell mortgages. In addition, we can discuss the implications and considerations of taking out these mortgages and help you prepare a comprehensive mortgage application.

Once we’re ready to proceed, we can scour the mortgage market to find the right property investment mortgage for you.

To find out how we can work with you, please get in touch.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Some buy to let mortgages are not regulated by the Financial Conduct Authority.

Back to all blogs