Real Estate Investing
Investing In Rental Property
Whilst the rock-bottom interest rates are getting the big thumbs-up from those with mortgages, savers with money to invest are getting fed-up with negligible returns from the bank and seeing their lump sum reduce in real terms due to the effects of inflation.
However, for those willing to consider tying up their cash into an investment vehicle, there may be an alternative solution.
The bank crisis has meant that it has become increasingly difficult to obtain a mortgage, with the lending criteria not only much tougher but lenders also insisting that a large deposit is paid in order to qualify for the best deals.
These factors coupled with the rising cost of living and instability in the employment market means that more and more first time buyers are finding it difficult to get onto the property ladder and instead are opting to rent their home. This is pushing up the demand for properties to let, with many estate agents unable to keep up with the demand.
This means that, especially with property prices still stagnating and the average home taking around seven months to sell, there is a unique opportunity for those able to either buy a house outright or qualify for a mortgage for a buy-to-let property.
In order to make money in the rental market it is essential to buy a home in the right area for the right price so before making an offer, ensure you have done your homework on the local rental rates. Purchasing a home and then finding that the monthly income does not cover the mortgage is counter-productive.
It is also vital to get a property in an area which is sought-after or up and coming as renting out a home in a less desirable neighbourhood may be more difficult. It also means that the chances of the value of the property increasing in the years to come will be good.
For those with enough money to pay a sizeable deposit, but not enough to buy the home outright, it is essential to get a mortgage with a secure and low repayment rate. It may well be worthwhile tying in to a fixed rate whilst interest rates are low, as getting a fixed rate deal at a later date may mean a higher rate.
By getting a tenant to pay enough money to cover your mortgage, you will be getting your money working far harder than if it was sat in a savings account. The amount of interest payable on a mortgage is far higher than being provided by any savings account on the market right now, which means a better return.
Those fortunate enough to be able to buy a property outright will be able to keep all of the tenancy income as profit, again, a far greater return than any savings account.
The disadvantage of investing in property is that the money is tied up and not immediately accessible. However, on the flip side, the amount earned will mean the rate of inflation will not be devaluing your savings and as a general rule, property prices rise in the longer term – they just tend to take a few dips along the way.
Keeping money in property is also a far more secure way of looking after an investment. Any bank or financial institution could potentially crash and although the government has a financial compensation scheme, there are limits which means you may not receive all of your cash back. A property is yours to manage and to sell, thereby negating the risk of what another recession might do to money sitting in a bank.
Recent reports have suggested that the average rent has increased nationwide due to the rising demand so it should be much easier to return a profit on your investment. However, before proceeding, it is a good idea to use an online mortgage cost calculator to check the likely amount of expense any home loans will bring.
