Buy-to-let property has become massive over the past decade to investors. From houses, studio apartments through to student accommodation, there is a variety of options available to build up your investment portfolio.
However, the big question is why should you invest in buy-to-let property? Below we discuss some of the exciting benefits of investing in this way and why more and more investors are choosing the buy-to-let option.
What does buy-to-let mean?
If a person purchases a property with the intention of letting it out to tenants rather than living in it, in order to produce a rental return and income stream it is classed as buy-to-let. Over time, the property has the potential to grow in value depending on the current market, producing capital gain when the property is sold on top of the previous rental income.
It is important to know that the rent of your buy-to-let property each month should cover:
- the cost of the monthly mortgage payment
- any expenses like property insurance, repairs and any letting agents fees
What does rental yield mean?
When choosing whether to invest in a buy-to-let property it’s important to work out your potential rental yield.
Rental yield is the return a property investor is likely to achieve on a property through rent. Knowing this figure will help you decide what kind of property would make the best return for you.
How do I work out the rental yield?
It is a percentage figure, calculated by taking the yearly rental income of a property and dividing it by the total amount that has been invested in the property. Multiply this figure by 100 and you’ll get your percentage.
A good rental yield for buy-to-let property is 6% and above.
Benefits of investing in buy-to-let property
- investing in property is one of the most reliable sources of investment
- you can earn an income two different ways; rent by tenants and through capital growth when you sell the property
- renting property is a popular choice, especially with young professionals so there’s unlikely to be a void period in your letting
- investing in apartments is typically a better option as it costs less than buying a house, so investors that have enough capital can invest in a few properties at once to build their portfolio to spread risk
Risks of investing in buy-to-let property
- property prices can go down as well as up
- there’s a risk that you won’t earn a profit on your investment
- you’ll need to tie up your money for a long period of time
- there’s additional risks that go along with borrowing money to buy property
Although buy-to-let property comes with some risks, they are outweighed by the benefits. As long as you do your research and find a property that has a good rental yield, you’ll be able to reap the rewards of your investment. To make it easier, use a property management company such as Urbane Brix. We can help you find the right property in the UK to invest in.