A Basic Guide to the Benefits of Property Investment
Investing in property is an increasingly popular source of income in the UK – and more people than ever are turning to property investments as an alternative source of income rather than a typical 9 to 5.
Property investment has many benefits, and anyone can become a property investor with the right information.
Before you even decide whether property investment is suitable for you and how to get started investing, you need to know why property investment is a solid financial choice.
The benefits of property investing are numerous; with carefully chosen assets, you can grow your wealth and enjoy a stable cash flow.
How much can you make?
Rental yield is a good indicator of a potential investment property’s profitability.
Rental yield is the amount of rent you receive for a house throughout a year as a percentage of the total money you paid for the property.
The higher the percentage value, the better the return on your investment.
How to Calculate Yield:-
- Take your property’s yearly rental income.
- Take your property’s purchase price.
- Divide the yearly rental income by the purchase price.
- Multiply the figure you get by 100 to give you the yield as a percentage.
A fundamental benefit of property investing is generating a regular monthly cash flow. In many cases, your cash flow only improves over time as you pay off your mortgage and build up equity in the property.
Where’s a good place to invest?
Manchester economically ranks among the highest performing cities not just in the UK but across Europe.
As the centre of the Northern Powerhouse project and increasing housing demand, Manchester is an attractive proposition for any property investor.
For any property investors, buy to let properties in Manchester have seen prices and yields accelerating significantly faster than the UK average.
Off-plan property investment in Manchester offers buyers the potential to make a substantial return on investment and a steady rental income.
Birmingham has long been known as the UK’s second city. As such an influential and growing city in the UK, Birmingham is ideal for investing in the property market.
With the biggest international companies moving to the city and investment catalysts such as HS2, Birmingham is poised to become a property investment hotspot.
Birmingham’s promise of opportunity and continued development has also drawn over 3,000 tech firms, making Birmingham the largest’ start-up’ centre outside London.
A robust rental market fuelled by a young population, business growth in the city and high demand for rental properties across the city makes for one of the most desirable cities for investing in property, not just in the UK but across the globe.
Capital growth predictions show that property prices in Birmingham will see a 24% growth by 2025. With rental demands expected to increase by 28% over the next few years, Birmingham is an excellent location to start your property investment journey.
What Types of Investment Properties are There?
Buy to Let
A buy to let property is a property that an investor has purchased to be rented out to tenants. The incentive of buy to let properties for investors is to make money from the rent paid by their tenant.
Rental income can cover the cost of the monthly mortgage price. Over time, you build up equity in a property without paying the mortgage out of your pocket.
HMO stands for house in multiple occupations. An HMO investment is when a landlord buys a property for a co-living home for multiple tenants.
HMO properties are divided into separate rooms, which are let to individual tenants with communal areas of the property.
HMOs have many benefits, and most importantly, rental yields can be up to 2 or 3 times higher than traditional buy to let properties. Also, void periods have less impact on your cash flow if one of the rooms is untenanted.
Off-plan property investment
This is very different from other types of property investments because the development has yet to be built.
This can be pretty daunting to many potential investors because of the wait for the projects to be completed. Still, there are many benefits to investing off-plan.
Off-plan projects usually have the highest potential for capital growth because the initial purchase prices are often much lower to attract investment. Once completed, the value of the property increases significantly.
Short-Term and Holiday Lets
The name may seem self-explanatory, but short-term lets usually have to fall within a specific timeframe. A typical example of short term lets is holiday lets such as Airbnb properties.
As a general rule of thumb, a short-term tenancy is usually any rental property offered for six months or less. Short-lets are typically priced much higher than long-term lets. The average short-term let achieves more than 30% higher returns than if the same property was being let on a long-term tenancy.
Social Housing Properties
Social housing properties are provided by housing associations (not-for-profit organisations) or a local council. These properties are rented out by a housing association or council acting as the landlord.
Social housing investment works by providing a housing association or council with properties that are on government-backed leases with a duration range from 5 to 20 years.
The housing association or council then manage the property for the duration of the lease also, including any maintenance costs.
As the investor, you receive a steady monthly income from the government-backed leases, whether the property has tenants or not. Rental incomes aren’t as high as in the private market, but social housing investments carry a lot less risk.
If you do your research in the key areas discussed above, your profits from the venture should begin to grow nicely.