Buying an investment property is a good idea for a number of reasons, including having a smart long-term investment strategy for both equity and passive income. There are a few aspects of investment property ownership that you should consider before taking the plunge to ensure you know just what you’re getting into and how to handle it.
You’ll need a big down payment
Investment properties are more difficult to secure mortgages on and are generally more expensive than properties used as primary homes. Interest rates on buy-to-let mortgages are also usually higher as well and are mostly interest-only mortgages. The minimum deposit for an investment property mortgage is can vary between 20-40 per cent of the property’s total value, so you may need to put down a considerably higher amount than if you were purchasing a primary home.
You’ll need to know how to be a landlord
Being a landlord isn’t as simple as some may think. It’s more than just sitting back and watching rent cheques roll in every month. There are skills involved, including managerial talent, having attention to detail, being able to negotiate and flex your people skills, in addition to a lot of physical work.
The first major step is knowing rental law and how to draw up a lease or renegotiate an existing one when the time comes. You’ll also need to know tenant law so you can arm yourself with the power of knowledge in case it ever comes down to difficult negotiations. There is a lot to learn, and it can be overwhelming, so if you have the budget to reach out to professionals, that is an option as well. Gerald Eve’s London knowledge is vast and their team can help you with any lease negotiations you may need.
The next big undertaking is understanding how to advertise your listing and find the right tenant. You don’t want just anyone to come into your property without conducting a background check and credit check because you want to be able to trust that they will be reliable and responsible tenants. You don’t want to have to be constantly fixing the property because of negligence and damage caused by them, just as you don’t want to be battling with them every month over rent.
Your income will vary
Tenants will come and go, and occasionally you may find that a few months go by without anyone renting your unit. It may take some time to find a new tenant after your last tenant vacates your property, especially if you need to do repairs. This can cause your income to fluctuate, and you may take a loss on some months because of the lack of income plus the cost of repairs, mortgage payment, insurance, and property taxes.
You’ll probably need to do repairs yourself
Being a landlord means you’ll be tasked with repairs for your property, and calling a handyman for each one can be pricey. Learning how to do some of the repairs yourself can help you save, and can help get the repairs done quickly so your tenants are more satisfied. Furthermore, consider how much savings you have, in case there are any unexpected repairs that need to be done either before the rent arrives or during a tenancy void.