Make the Most of Your First Property Investmentfjpinvestment
Like many, as a new landlord you may be thinking about protecting your wealth in a time of economic uncertainty. With rising inflation and purchasing power being weakened by the day, you may be thinking about making your first property investment.
If you are at this stage, you’ve probably heard about the many success stories out there, and there are plenty to choose from. But remember, behind every property investment success is more than just purchasing a property and watching the rent come in and the property rise in value; it is also about making sure that you take the right steps and having the basics in order.
Investing in residential property can not only help you protect your wealth and generate passive income, but it also serves an important social function for society by providing homes to people who do not want to or cannot afford to buy one. There is currently a UK housing crisis, and a big chunk of the cause of this is the lack of housing stock available.
The government, for its part, has consistently failed to meet its targets for building houses, and so the private sector plays a vital role in building houses to rent out to people looking for somewhere to live.
Making the most out of your investment involves many elements, but there are some simple ones that should be given some thought to maximise your first property investment.
For landlords to turn a profit on their investment, they must charge rental income higher than what the mortgage repayments come to -assuming that your investment is being financed by a buy-to-let mortgage. For many tenants, their perspective is limited to landlords charging a rent fee, the mortgage is then paid, and the landlord pockets the rest. Of course, this is far from the complete picture of why landlords have to charge what they do.
As with most things in life, there is usually much more to it than what meets the eye. A tenant’s rent doesn’t only help cover the mortgage payments; it also goes towards paying for other vital costs and services that the landlord must provide to meet their responsibilities and maintain the property.
Knowing what costs are involved for landlords is extremely important in balancing the investment books. If it were just a matter of paying the mortgage costs and pocketing the rest, that would be very nice; the reality, however, is very different.
In addition to covering the mortgage, rental income will also need to cover the following costs:
- Landlord’s insurance
- Repair and maintenance
- Safety certification for utilities: gas and electricity
- Void periods – times when tenants aren’t living in your property
- Management fees (for those that use management companies to run their investments).
- Tenant searching and vetting fees
- Unforeseen costs: the landlord’s insurance will cover many things, but not everything
Depending on how you finance your investment, another “cost” should be considered. If you have an interest only mortgage, when the mortgage term ends, you will need to find the initial cost of buying the house. However, a huge benefit of an interest only mortgage is that the house could be worth much more than when you initially bought it.
OK, so you know the basic costs that landlords can expect to meet, but what can you do to make the most out of your investments?
Research the market
If you view your property investment as a business, then you are off to a good start. Adopt a business mindset; think like an entrepreneur and you will act like one. Like with any business undertaking, do your research, and get to know your market well.
Understand the property you want to buy and the type of client you want to attract to it.What is the demographic in the area? What is the income level? Do elderly or predominantly young people live in the area?
Having this data available will help guide you as to what type of tenant you are likely to be looking for, which in turn will guide you to the type of property that is best suited for your investment. Younger tenants, for example, will be looking for things that more mature ones won’t, such as smart technologies like 5G internet and smart thermostats.
Also important is being aware of the typical rental income level in the area. For example, if the average rental income you can expect is fairly high or low, this would need to be factored into the standard of renovation that you do.
Consider a limited company
According to Jamie Johnson, CEO of FJP Investment, “To make the most of your property investment, a consideration of the tax implications is a good idea. Instead of operating as an individual, operating as a limited company is the route that many investors take and is increasingly becoming the route of choice. This option won’t be suitable for every investor, so taking professional advice is best to make sure it’s right for you and your circumstances. ”
One reason why many landlords consider operating as a limited company is to separate personal finances from business finances, something that can cause all sorts of unnecessary complications.
So, let’s take a quick dive into what is involved with this route to managing your investment and look at what’s involved.
Tax incentives are the main reason why many investors operate as a limited company. Consider these differences between these three tax levels:
- Corporate tax rate for a limited company is 19%
- High-rate taxpayer rate is 40%
- Additional rate payers pay 45% in taxes.
These numbers speak volumes, right?
Minimising risk is another important reason why investors opt for a limited company. Personal assets could be at risk when operating as a sole proprietor, and therefore, if any legal action was taken against you for some reason, you could personally be on the hook for a large payout. As a shareholder in the limited company that you set up to manage your investment, on the other hand, your personal assets are not at risk of being taken away in such an event.
Tax implications for landlords have changed over the years, and since April 2017, the amount that can be written off has progressively declined, resulting in all rental income being eligible for income tax. However, the situation is different for buy-to-let properties that are owned by a limited company, since in this situation the property is classed as a business and so all expenses can be written off.
Obtain several quotes
As a new landlord, making sure that you obtain several quotes on all of the things that you do will potentially save you a lot of money and time. Don’t restrict your options to just one supplier for the purpose of ease; instead, shop around and compare prices. In addition, check out their quality of work and reputation, something that is much easier to achieve in the internet age.
This advice also applies to getting the best mortgage you can. Lenders are also operating in a competitive market, so shop around for the best deals.
Build a trusted network
Obtaining multiple quotes for everything from mortgage lenders and conveyancers to a roofing or plumbing job is a sound move, but so is building a trusted network that you can call upon when needed. To maximise your investment potential, you need to be assured that you have a trusted team of trade suppliers who won’t keep you hanging on, are reliable, do quality work, and can keep you within budget.
You don’t have to go it alone when investing in property. You can find supportive property networks that comprise a whole range of people with diverse experience and knowledge, all of which you will find useful, particularly in the early days.
On top of these supportive networks, you can also garner a lot from property learning events and training. If you have attended some kind of training event in the past, you will likely have discovered that you can learn just as much by talking to other attendees as you did from the course itself. In fact, such learning events are also a good way to network and meet like-minded people.
Grow your property investment portfolio
To make the most of your buy-to-let property investment, keeping a lookout for further great investment opportunities and growing your investment portfolio is a sound way to gain momentum with success.
Naturally, the additional income and capital appreciation of multiple properties is a savvy investment goal, but the time and effort put into managing your investment is expandable to multiple properties. If you have a network in place that you have developed to use for work on your property, you can use the same network for others.
Having a clear budget in mind, securing financing, having an investment strategy in place, searching for and finding the right property in the right location, and finding good tenants is the starting place. These are all important steps in getting onto the lucrative residential buy-to-let property investment ladder.
Making the most of your buy-to-let investment involves going further to help make a success of your investment. Rather than thinking of your investment like a piece of rare art that hangs on the wall for people to pay a fee to come and see, think of it like a well-tended and expanding garden that requires lots of love and attention to keep the attraction going. The garden (investment) will not only bring you income, it will also be a source of great pride and achievement.
Finding ways to save money, such as considering the limited company option or obtaining multiple quotes to get the best price, is like weeding the flower bed for better growth of the flowers. Keeping up with maintenance and developing a reliable network can be likened to watering the plants for optimum health and vitality. Of course, we can take the garden metaphor only so far, but the point is that, once you have taken the property investment plunge and are up and away, it doesn’t stop there. You can be smart about managing your investment and take further steps to make the most out of your property investment.