For those looking for a reliable way of building financial security and achieving financial freedom, investing in a Buy to Let (BTL) property is one of the most popular strategies out there. Part of the reason for this is the fact that the returns can be generated through rental income and capital growth over time.
But how much money do you really need to be able to invest in property? Well, there are a couple of things you need to consider.
The budget you will need for your Buy to Let investment depends on where the property is located and, to a lesser extent, what type of property you’re looking to purchase. Properties in London can range from £500,000 upwards, while properties in other areas can be as cheap as £50,000. That’s not to say that the cheaper properties are necessarily better; it all comes down to what you are looking to achieve. If you are looking to maximise yield or return, it is well-known that the North offers cheaper properties and better yields.
Leeds & Sheffield generate quite high yields because of their relative size and geographical location. An average 2-bedroom freehold house currently costs about £125,000.
One of the benefits of purchasing a rental property is that you are able to make your money go further by using a Buy to Let mortgage. Because property is such a stable asset class, banks are willing to lend you money to purchase them. This means that you are able to purchase the same property for a fraction of the price of purchasing it outright.
The loan to value (LTV) ratio that you choose for your mortgage will impact how much money you need to invest in the property, but assuming you use an LTV of 75%, the deposit requirement would only be 25% of the purchase price. In Leeds, this means that you can purchase the property with as little as £31,250!
You will need to work with a conveyancing solicitor to assist you with the legal side of purchasing a property. As well as that, you will need to pay for property searches and independent legal advice, if requested by your mortgage provider. The total cost of legal fees can range from Approx. £1,200 – £2,000
If you decide to purchase using a mortgage, you will also need to use the services of a Mortgage advisor, who typically charge between £500-£1,000. Depending on the mortgage products available to you, there may also be Valuation fees (£150-£600) and sometimes also mortgage product fees (£1,000-£3,000). The latter can usually be added to the loan amount and paid off over the loan term.
When purchasing a property, it is always prudent to get an independent professional to carry out a survey on the property to ensure there aren’t any major issues with the property.
There are 3 distinct levels of survey, each with their own pros and cons.
1. Condition Report
2. Home-Buyer’s Survey
3. Structural Survey
We typically choose to get a Condition Report on all the properties we purchase as they give you the most bang for your buck as an investor. Condition Reports can range from £300-£500, while a full Structural Surveys can set you back well over £1,000.
Many investors choose to take out insurance for their properties to cover any potential damage or loss of income. The most popular types of insurance to consider are building and contents insurance, rental protection insurance, and landlord liability insurance. You may also need to think about unoccupied property cover if the property will be vacant for more than 7 days after exchange of contracts. Insurance varies between £200-£400 per annum, depending on the cover chosen and the excess amount.
Stamp Duty Land Tax (SDLT)
While the stamp duty holiday allows investors to save a significant amount, it will not be around forever and buyers that already own a property will still have to pay the Additional Rate. This is currently 3% on the portion of the property up to £500,000, 5% on the next £125,000 (£6,250) and 8% on the remaining £250,000 (£20,000). On the 2 bedroom property in Leeds, the SDLT would be £0 on the Standard Rate, but £3,750 on the Additional Rate.
Refurbishment & Project Management Costs
Refurbishment costs are usually as long as a piece of string! They can range from a few hundred for safety certificates, to tens of thousands of pounds, depending on the extent of the works. We always try to make our property the most desirable house on the street, so it has a good chance at being constantly rented. However, you need to be careful not to spend too much as every area has a ceiling price, above which properties will not sell.
It is also useful to consider hiring a project manager (PM) to oversee the refurbishment works, especially if you are not within a short drive of the property. PMs can often save you time and money and most of all, the hassle of having to work with tradesmen.
Our average refurbishment and PM cost is between £8,000-£12,000.
Once you have purchased and refurbished your property, you will then need to rent it. Although you can theoretically do this yourself, with all of the new rules and regulations, it’s usually better to pass it to a competent agent and let them take care of it. Typically the Lettings fee will include onboarding the property, marketing and viewings to find prospective applicants, referencing of the chosen tenants and dealing with the deposit and any move-in issues. The Lettings fee can range from £250-1,000 and sometimes depends on the expected rent.
If you are looking for a ‘done-for-you’ service, there will also be an additional charge to factor in. With most ‘hands-free’ investing services you are paying for more than just the time for someone to do the work for you. With our service, for example, our fees range from £9,995 to £10,995 per property, and our clients pay for:
1. Expertise – to know what to buy, where to buy it and how much to pay for it
2. Relationships – to be connected with the agents and be able to negotiate discounted pricing or preferential terms for the purchase
3. A hassle-free experience – to know that if anything goes wrong, there is someone on hand to deal with all the issues on your behalf
So, how much money do I actually need to invest in property in the North?
We can see that there are a number of costs associated with investing in property, most of which can be written off against future profits, from a tax. In total, using a 75% mortgage and investing in the Northern property market with us, you will need between £50,000-65,000 depending on the property.
Want to see how all these numbers add up? Click here to view an example deal.
Whether you’re a first-time buyer or seasoned investor, our job is to make the process of investing as hassle-free as possible, so you can sit back and enjoy the great returns. If you want to find out how we can help you achieve financial security and independence through sustainable property investments in the Northern property market, register for our next Property Investment Masterclass here