Buying an Investment Property
One of the most lucrative investments in the current economy is buying and selling property. There are many people who have built up a sound portfolio of investment properties to either be sold or rented out for additional income. You may be considering indulging in this profitable sector or you may just simply be weighing out the pros and cons. In this guide we will discuss the benefits of buying an investment property and where to search for properties that you can use for your long-term financial future.
Commercial or Residential?
If you have millions to invest the commercial is an interesting option. If you have hundreds of thousands then you should stick to residential.
Commercial: Things to take into account
• If you are buying through a company then your purchase will be subject to VAT.
• You need to plan for the possibility that the property will be empty for prolonged periods – it is harder to find companies to lease a property than it is to find residential tenants. You also will have to pay business rates when the property is empty.
• Borrowing money for commercial is more difficult that residential. You cannot just borrow based on rental income. Your company/or your personal income will have to show it can service the loan (years of accounts etc).
• An estate agent can estimate rental income, this helps in financing.
• Buy small, one bed or studio. You may not like the property but it is easier to rent. A one bed will rent to a single person and a couple. A two bed more often rents to two friends. This means parties and more damage.
• Buy in large towns or cities and near to transport.
Location, Location, Long term
The old adage of location, location, location never changes. Close to underground, rail, transport, offices etc. A hot area is always a good investment if you can afford to get in. Usually warming areas around a hot spot are the second best bet.
Do not invest in property if you need to make a quick buck. Costs like stamp duty, solicitors etc. mean that you need to look at any property investment as a 5 – 10 year investment. The good news is that commercial or residential there are many areas where you could double your money if 5 years, just on property value. That is not even taking into account the rental income that you may or may not be using to service any borrowing. Going back to location – you should note that most of the areas where you can double your money in 5 years are in cities and mostly London (Wapping, Shoreditch, Hoxton, etc)
Where to look for investment properties in the UK?
There are a variety of property websites online but some of the most popular are Right Move that has a range of property investment opportunities both in the UK and overseas. This is especially ideal if you want to invest in a property to be used for leisure, such as a holiday home in the sun. Prime Location also has a range of properties that you can browse through featuring leading estate agents from all over the UK, including international properties for you to consider investing in. You may want to also consider looking at Zoopla which is the leading property site in the UK where you can search for your individual requirements on houses, commercial property, flats, studios and much more.
Gaining Profits from your Investment
The trick is to work out the best time to sell. Do not panic into selling too soon. Prices may plateau or not increase as fast as in previous years but with the current shortage of housing and office space, particularly in urban areas, the prospect of a crash in process is remote. This is especially true over the medium term.
Remember if you do sell your property you will have to pay capital gains tax on the increase in value of the property. You will also have to pay tax on any rental income – however, you can deduct your mortgage interest payments and refurbishment costs from your income. With interest rates low for the next few years this make borrowing quite attractive even if you have the cash in the bank.