Investing in buy-to-let properties has traditionally been seen as a simple way of making money. However, this isn’t necessarily the case. In fact, some people who make unwise buy-to-let investments find that they lose money in the long run. This is because there are a number of factors which can influence just how much profit can be made from any given property.
With this in mind, is a buy-to-let investment a secure one?
The Importance Of Research
Obviously, the stock market is a clear comparison – everyone knows that share prices can go up or down – however when it comes to property, some potential investors are under the impression that their investment cannot fail. This is not the case.
Just like stocks and shares, property prices can fluctuate. Some people who invest in property discover that the value of the home increases dramatically over the years thanks to improvements in the local area. Others, on the other hand, find that the area in which they purchased the property takes a downhill turn and becomes less desirable for tenants and buyers alike. This means that research is key to determining which property is the right one in which to make an investment. Aspen Woolf have over 15 years of experience in identifying excellent opportunities within the property investment sector, so instead of going it alone, talk to our advisors to ensure you’re getting excellent advice in the current property market.
The Potential Profit
It comes as no surprise that buy-to-let investments are frequently seen as being extremely secure. After all, property investments can be extremely profitable since they offer two distinct forms of revenue stream. Firstly, investors receive ongoing revenue every month from the property’s rental income. Secondly, when the investor decides to sell their property they receive more profit from the sale.
Today, there is an unprecedented demand for rental properties across most regions. There are ongoing shortfalls in local housing, and this is now paired with the inability for many young people and families to afford a property of their own. Both of these factors mean that if you carry out your research well, it’s possible to invest in a desirable property which will be popular with tenants and command a good rental yield. With infrastructure developments across the UK, such as the HS2, the road to London is becoming faster and more accessible, meaning that properties along the route will be highly prized. Aspen Woolf stay abreast of these changes to ensure we curate the most desirable properties.
For many investors, buy-to-let properties are often viewed as a longer-term investment instead of considering the rental yield. They purchase properties with a view to selling them at the perfect time so they can reap large gains on their capital value. However, if the income earned from rent is put aside, none of the property sale profits will need to be used as a deposit when making your next property investment.
The Potential Pitfalls Of Buy-To Let Investment
Although there are clearly many benefits to investing in a buy-to-let property, there are a number of potential pitfalls which should be borne in mind before taking the plunge. Potential investors must acknowledge that no investment can be guaranteed when it comes to offering the expected returns. Although many buy-to-let properties turn out to be very lucrative investments, making more profit than previously imagined, others can end up costing the investor a lot more money than they intended to spend.
There can be a number of factors which can impact on the profitability of any buy-to-let property. While some can be foreseen, others may emerge out of the blue. For example, the recent uncertainty about the implications of Brexit has led to a number of unpredictable property market changes which could have a serious impact on any buy-to-let investment.
Also, for some considerable time, the interest rate has been at a very low level. Investors have been able to reap the benefits of this thanks to cheap mortgages. Unfortunately, however, there has now been a rise in the interest rate, and there is now a distinct possibility that more interest rate rises could follow. This means that landlords must ensure that they are in a secure financial position in order to rise those increases out. Interest rate rises mean that mortgage payments will increase at some point, whether that be immediately or once a fixed rate deal ends, so it’s essential to ensure the rental income of the investment property will cover those payment increases in order to avoid damaging losses.
Changes In The Property Market
When the property market goes through changes, this will impact on the success of any buy-to-let investment. House prices have seen growth, however in some parts of the country this growth has now slowed down. This means any potential property investor must always be vigilant on what this could mean for their property’s value. It’s always important to have a viable exit strategy which should centre around when the best possible price can be obtained for the property. This means that landlords need to decide whether or not they are financially able to wait and hold onto their property until the prices have increased should its value have fallen.
The Danger Of Empty Properties
One problem which a lot of landlords experience is their property lying empty for extended periods. This often comes as an unexpected shock since the rental market is so buoyant in many parts of the country. However, there are a number of reasons why a property can be empty. Sometimes, tenants will end their contract early. Sometimes, work has to be carried out before the property can go back onto the rental market. Other times, there is just a drop locally in demand.
When there is no income from rent for any period of time, landlords have to be certain they can still make their monthly mortgage repayments. If a tenant falls into arrears with their rent, this could also pose a potential problem, with landlords having to cover the mortgage themselves. With this in mind, rental property may not be such a lucrative choice as many investors think.
Overall, a buy-to-let property can be a very profitable investment. However, doing adequate research and keeping a close eye on the property and financial markets is essential for success. A successful landlord will also have a clear contingency plan just in case of an unexpected change.