Residential property investing can be lucrative. But you have to know what you are doing. If you don’t have a clue and mess up you stand to make serious losses.
The first lesson for any successful investor is to focus on the cash that a property investment will generate. This is often known as the yield. Rental yields are useful as barometers of the health of a property since they can be compared across different opportunities, sectors or regions. It also allows you to make comparisons with other sorts of investments such as stocks or bonds. It also gives a good measure of affordability as you can compare you yield against you expected expenses and mortgage rates.
When buying an investment property such as a buy to let investment in Britain, you also want to focus on the possibility of a growth in the value of the property itself. In other words you don’t just want the cash flow, important as it may be, but you also want to increase your capital, or at the very least preserve it. There is no point getting a high rental yield if the underlying value of the property just collapses.
To get a combination of both you need to look at the area you are planning to buy in as well as the sort of tenant you want. One segment of the market that has been attractive of late is the area of student buy to let. This is because in many university towns there is insufficient student accommodation. As a result rents have been rising, even though they have fallen in many other parts of the country. The shortage of accommodation is also supporting property prices. I’m looking at towns with high and growing student populations and think they may be attractive areas for future growth.