By There are lots of things to take into consideration when buying a property, but the list for investors is often very different to those who intend to make the building their home.
Whilst both need the purchase to make financial sense, investors will need to think along slightly different lines and can be more dispassionate in their decisions.
Even experienced buy-to-let investors will sometimes find themselves torn when choosing a property, and so to make up your mind you will need to think about both the capital gains of the property and its potential rental yield.
These will determine how you make your money and how much of it you can expect to ensure that the property you are thinking about purchasing is the right one.
Capital gains
The capital gain on a property is the amount of profit you are likely to make when you sell it. To determine what this might be, you need to look at the average house price growth in the area to calculate what its value is likely to be by the time you sell.
It seems that over five years, semi-detached properties have increased the most, but investments over 20 years have seen terraced house values perform the best.
There will always be fluctuations in the market, so looking at different time scales is important when considering what you are likely to get back.
Rental yield
A buy-to-let investment is one which allows others to live in your property and pay you rent for the privilege.
You will need to assess what the rental income is likely to be by looking at other properties in the area and then deduct costs such as mortgage payments, landlord insurance, maintenance costs and letting agent fees.
You should then divide this by your total investment to assess how much money you actually stand to make.
Many investors find that rental yield is a more important factor, particularly for those looking to make a short to mid-term investment when capital gains may not have had time to grow very much.
Location is also of great importance, so considering the area of the country that you are in is very important when it comes to property prices, rental demand and typical rental prices.
Whilst investors typically think of a rental property being a house that is available to a single person or family, there are other opportunities available.
A House in Multiple Occupation (HMO) is shared by at least three different tenants who are not part of the same family. These types of property often provide the highest rental yields, as there are mort tenants paying rent for the same space.
Multi-units such as blocks of flats can also provide profitable yields. If you are looking for a house a flat to rent to a tenant, it seems opting for one with two bedrooms seems to offer the highest potential rental yields.
When buying property as an investor, you need your head to rule your heart. Personal feelings about a property do not need to come into the decision, and instead, you need to make it something which makes good business sense.
Have a plan based on how much you want to spend, how much you want to make and how long you intend to keep the property to help you make informed decisions.
In the end, it will still be your decision, but you need to look at it in a different way to the house you are looking to live in.
Keeping your calculator in hand and as many statistics as you can at your fingertips will help you to make the best choice for you and your bank balance.
Author: Mark Burns, Managing Director of Pure Investor.
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