Top tips for successful property investment

Affordability

The first thing to con­sid­er when mak­ing a res­i­den­tial invest­ment is whether you can real­ly afford it. In par­tic­u­lar, if you are tak­ing out a mort­gage, pay atten­tion to the net income return expect­ed and the poten­tial for this to change due to inter­est rates and reg­u­la­tion.

“Be mind­ful of tax changes and tighter mort­gage reg­u­la­tion to come, notably the phased with­draw­al of income tax relief on mort­gage inter­est pay­ments. Mort­gage reg­u­la­tion will stress test afford­abil­i­ty at much high­er mort­gage inter­est cov­er ratios, reduc­ing the amount of debt investors can take on,” says Lucian Cook, head of res­i­den­tial research at Sav­ills.

Infrastructure

New infra­struc­ture has the poten­tial to meta­mor­pho­sise areas in terms of their atmos­phere, vibran­cy and ulti­mate­ly, val­ue. Areas such as Slough have seen surges in val­ue as a result of the forth­com­ing intro­duc­tion of Cross­rail and the prospec­tive impact of Cross­rail 2 and HS2 should be watched close­ly.

“Infra­struc­ture ini­tia­tives are open­ing up swathes of land that were pre­vi­ous­ly unsuit­able for devel­op­ment, bring­ing major regen­er­a­tion to new pock­ets of Lon­don in par­tic­u­lar. As trav­el times into Lon­don are trans­formed, these areas will draw in new buy­ers, push­ing up prices. Antic­i­pate this and invest ahead,” says Mark Collins, chair­man of res­i­den­tial at CBRE.

Returns

It is impor­tant not to get greedy and expect a huge uptick in val­ue straight away. Prop­er­ty typ­i­cal­ly throws off a much high­er income return than bonds or stocks and is a valu­able cash­flow gen­er­a­tor.

“Focus on the cash­flow and take what the mar­ket gives you in house price growth – res­i­den­tial is a great cash­flow invest­ment where rents rise in line with earn­ings over the long run. Focus on buy­ing a real­ly good rental prop­er­ty that is attrac­tive to ten­ants and will have low voids,” says Richard Don­nell, direc­tor of research at Home­track.

Housebuilders

Many house­builders have found them­selves under con­sid­er­able pres­sure in recent times fol­low­ing the result of the EU ref­er­en­dum with dra­mat­i­cal­ly sub­dued share prices. This means there is added empha­sis for them to hit their sales tar­gets and investors can look to take advan­tage.

“Aspir­ing buy­ers can some­times secure them­selves a size­able dis­count if they are look­ing to buy a new-build home from a major list­ed house­builder that is approach­ing its finan­cial year-end. Most list­ed house­builders have either a June or Decem­ber year-end and will invari­ably be keen to push through as many sales as pos­si­ble as they approach those key dates,” says Nick Whit­ten, asso­ciate direc­tor of res­i­den­tial research at JLL.

Spending

Beware of the added costs of own­ing and man­ag­ing a prop­er­ty – it is not as sim­ple as adding up the demand­ed rent for the year and assum­ing that is your return. The high­er return­ing nature of prop­er­ty inevitably comes with more draw­backs than low­er yield­ing bonds.

“You can’t phone up your bro­ker and sell it, and then you need to spend mon­ey to let and man­age it. You will also have voids, poten­tial repairs plus tax­es, bor­row­ing costs and pro­fes­sion­al fees,” says inde­pen­dent agent Hen­ry Pry­or.

Farming land

Con­sid­er­ing pur­chas­ing a home with farm­ing land can bring about advan­tages for investors look­ing to avoid puni­tive tax rates, with this sec­tor often out­per­form­ing tra­di­tion­al res­i­den­tial invest­ment.

“Farms and oth­er mixed-use prop­er­ties only attract a flat 5 per cent rate of stamp duty, com­pared with up to 12 per cent – or even 15% if it is a sec­ond home – for a high-val­ue coun­try house. The land can be eas­i­ly let to a local farmer keen to expand their busi­ness with­out increas­ing fixed costs and pro­vides a wel­come income stream,” says Clive Hop­kins, head of farms and estates at Knight Frank.

Auctions

The auc­tions mar­ket can be a rich source of oppor­tu­ni­ties for investors look­ing to pick up bar­gains from banks that have fore­closed or from sell­ers unwill­ing to invest the time and mon­ey to bring prop­er­ties back up to stan­dard.

“Sale by auc­tion is open to all and whilst the bid­ding can be a nerve-wrack­ing expe­ri­ence for the first-time auc­tion buy­er, it does mean that pro­vid­ing the seller’s min­i­mum price is reached, you can make that one bid extra that secures the prop­er­ty for you,” says Richard Auter­ac, chair­man and auc­tion­eer at Acui­tus.

Students

Stu­dents are tra­di­tion­al­ly depict­ed as short of cash and liv­ing off rations but the real­i­ty is often very dif­fer­ent, and buy­ing in a mar­ket with a num­ber of aca­d­e­m­ic insti­tu­tions can be a wise bet to bring in a strong income.

“There are now more than 500,000 stu­dents liv­ing in the pri­vate rent­ed sec­tor out­side of uni­ver­si­ty-owned or pur­pose-built stu­dent accom­mo­da­tion. Buy-to-let investors who tar­get large uni­ver­si­ty towns or cities may be able to cap­i­talise on this trend in Sep­tem­ber and Octo­ber when stu­dents using clear­ing are most active,” says Nick Whit­ten, asso­ciate direc­tor of res­i­den­tial research at JLL.

Redevelopment

For those look­ing to be more adven­tur­ous, get stuck in and take on more risk there is huge upside poten­tial in rede­vel­op­ment. How­ev­er, do not under­es­ti­mate costs and the time-con­sum­ing nature of doing so.

“Con­vert­ing old pubs to homes or tak­ing two flats and mak­ing them a fam­i­ly house again can be lucra­tive. Fol­low the mon­ey and con­sid­er who has the abil­i­ty to buy what they want and how you can offer it. Many old com­mer­cial build­ings in mar­ket towns have been get­ting con­sent to be returned to res­i­den­tial use and it is worth con­sid­er­ing if there is a suit­able build­ing in your town,” says inde­pen­dent agent, Hen­ry Pry­or.