Before we start this blog we would like to add in one very important amendment. When investing in property there are a number of other considerations to factor in:
Most importantly, you want to know who your target audience is, e.g. young professionals, students or families. This will dictate not only the type of property you choose to invest in but the way in which you furnish it. Generally, families will look for a two-bedroom place with a living space, whereas with students the focus is often on having as many bedrooms as possible, to lower the cost. So do take some to consider your target audience and how you can best appeal to them.
The local market
Once you have chosen your target audience you are then ready to identify the right area for your investment. To do so you will need to work to gain an in-depth understanding of the local market – things like schools, transport links, sports clubs, student life; really making sure that the property you choose aligns with the needs and wants of your target demographic. More than that, you may also want to consider if you can access the property easily; which may well be necessary if you are managing the property yourself. Trust us, if your tenants are without heating they may well expect a personal visit at the worst times of day, or indeed night.
There are more than a few costs involved in investing in property, and sadly we find that a number of new landlords overlook some of the most important costs when they look to invest in property. Now whilst everyone knows that purchasing a property will involve a hefty amount of legal fees, what they often forget is that as a landlord you will also need to meet a number of legal requirements, including gas safety certificates, energy performance certificates, right to rent checks, as well as a whole plethora of other certifications that may well add significantly to your costs.
Property Investment Formulas
(Now), alongside all those factors, there are two formulas that offer a clear indication of whether a property has viability.
The first one allows you to calculate a Return on Investment and is useful if you are looking to get a mortgage, as it allows you to compare the rate of return against the funds in your bank, and is calculated by dividing the cash flow by your total investment.
- Cash Flow / Total Investment = Return On Investment
If you bought the property with a mortgage – using your own cash – then the net yield and ROI would be identical. However, if you’re getting a mortgage they will look different. Secondly, you can calculate yield by dividing the gross rent by the purchase price, which again is helpful if you are looking for a mortgage. In this equation, the figure will be lower as the costs are higher. However, it is exceptionally helpful as it tells you exactly what is going to happen and can allow you to precisely planning a strategy.
- Yield = Gross Rent/Purchase Price
If you are just getting started and want industry experts to identify Buy to Let Properties with a High Return on Investment, drop us an e-mail at [email protected]