Property Investment: What, when and why?

Investing in property is an attractive proposition for many people as we enter 2021. The housing market had a very strong year in 2020 considering the circumstances we were all facing, and with house prices always rising over the long term, if you buy well now you will be reaping the rewards for many years to come. Here at Chelton Brown we work closely with many landlords, so we are always gaining more knowledge about the investment market and how we can help our new landlords find a property that fits their needs perfectly. In this article we will share some simple, yet must read tips if you are looking to invest in property in 2020.

The first thing to work out before you start investing in property, is why you want to do it in the first place. This is so important to have an understanding of before making any investment decisions because it will determine various factors such as where you buy, the type of tenants you target and the types of property that you buy.  Ask yourself questions like ‘What do I want to achieve from investing in property?’, ‘How can I get there in the quickest way?’ and ‘Would I prefer a property that increases in value or generates high cash flow?’ These questions will help you to understand more about your specific property goals and will allow you to come up with a search criteria for any potential investment properties.

Once you have worked out why you want to invest in property and have established a search criteria, you need to learn how to run your numbers, because this is what will determine how much you pay for a property and will mean that you don’t make a bad investment decision. The key calculations to understand are yield and return on investment (ROI) and we will break them down here for you. The yield is a simple calculation that allows you to quickly analyse a property deal. It is worked out by taking the annual rental income, dividing it by the purchase price of the property and multiplying the answer by 100. Typically properties with a lower value have a higher yield, but a good yield to aim for is anywhere between 4% and 7%, depending on where you want to invest. To work out ROI takes slightly longer, but is still simple. You take the annual profit you will make after costs (rental income – mortgage payments and management costs), divide this by the total amount of money you have invested e.g. mortgage deposit, stamp duty, solicitor fees etc. and then multiply the answer by 100 to give you a percentage. ROI is usually classed as more accurate as it takes into account the profit, rather than just revenue.

Finally, once you have practiced running your numbers, get networking! As they say, “your network is your net worth” and this is definitely true in property. Start attending property networking events (online during COVID-19) in your local area and just get chatting to people. There are people from various sectors at these events, including estate agents, mortgage brokers, builders and other investors of course. It’s crucial that you have a strong network to tap into when investing in property because they will be able to help you with any questions that you have and if you ever need a recommendation for a builder, letting agent or solicitor for example, they will always be on hand to point you in the right direction. Some of the most famous property networking events are Property Investors Network (PIN) and Progressive Property Network (PPN).