Property Investment – A Beginners Guide

Property investments can net you thousands of pounds in profits each year but they have to be good property investments to make this happen. What constitutes a good property investment though, and how do you go about finding one?

Essential criteria for a good property investment

There are several criteria that need to be met before property investments can be classed as profitable. The most important of which are as follows:

 1. All property investments need to generate more in terms of income than they cost in terms of outgoings. So for example, the rental income from an investment property needs to exceed the mortgage payment + the landlord insurance payment + any other associated costs e.g. council tax, letting agent fees, property management fees etc. The bigger the gap between income and outgoings the better the investment and the more profit you’ll see.

 2. Good property investments need to provide the buyer with instant equity. The easiest way to do this is to buy a BMV, or below market value, property. Property auctions and dedicated inheritance property websites are both great places to pick up BMV properties, but it’s vital that the property you choose doesn’t require a complete, and expensive, overhaul before it can be put on the rental market. The amount of equity a property provides will depend to a large extent on its condition when bought, but at the very least it should be in excess of 20% of the purchase price.  

 3. Good property investments need to be attractive to tenants. This may sound like an obvious statement and in many ways it is but it’s amazing the number of new landlords who buy an investment property from auction without researching the private rental trends of the local area. Auction houses generate fast paced, tense atmospheres and it’s easy to get carried away and buy a property that seems like an absolute bargain. It may in fact be a bargain but you should ask yourself why it’s such a bargain and why no one else is bidding.

For property investments to be attractive to potential tenants they not only have to be clean, bright and fully equipped, they also have to be in a pleasant area with all the essential amenities close by. A bargain property in a notoriously bad part of town, or in an area with very poor public transport links, or in an area with a high crime rate will be a lot harder to rent out than a slightly more expensive property in a sought after area.

At the end of the day good property investments are only good if they have a continuous flow of tenants, or even better a single long term tenant. If it takes several months to find a tenant only for them to leave at the end of the initial 6 months your bargain investment property will probably turn out to be more trouble than it’s worth.

 In conclusion

For property investments to be considered ‘good’ they have to make a profit, and the only way to do this (other than to refurbish them and sell them on) is to have tenants at all times. Buy as cheaply as you can in the best location possible, and rent out for as much as you can and hopefully your property investments will give you the profits you deserve sooner rather than later.