There are two ways that rental properties can provide you with an income. Each approach comes with its own considerations and which way you end up going with will depend on your individual circumstances and goals. Find out more about the best way to generate an income from an investment property and how to choose the right one.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Two ways to go about earning an income
The first method of earning income is to invest in a property with the expectation that its value will increase over time. With this approach, rental income covers your ongoing costs, like your mortgage payments, property taxes, and maintenance expenses. While this might provide some income during your rental period, the real profit comes when you sell the property, ideally for a much higher price than what you paid for it initially. For this strategy to be successful, you will need to have a real understanding of the property market and the factors influencing property values.
The other approach is to focus solely on generating a steady income stream through rent. To generate a significant income this way, your goal will be to secure reliable tenants who will pay their rent on time, ensuring that you have a regular income that exceeds any expenses related to the property. With consistent payments, this surplus becomes your profit. While this strategy doesn’t provide a massive one-time payoff like the first method, it does provide a consistent income that might be more appealing to the more risk-averse.
Either way, a successful property investment requires careful management of costs and a robust understanding of your legal obligations as a landlord.
Key considerations when selecting an investment property
- Establish your budget – this will determine the range of properties you can afford and inform your search. You should do your research on property prices and average rent in the area you want to purchase in. It’s important not to entertain properties outside of your budget so you aren’t strapped for cash and are prepared for unexpected expenses or vacancy periods.
- Buy-to-let mortgage – Don’t forget to include mortgage costs when you are planning. Be sure to work with a professional to ensure you get the best buy-to-let mortgage deal.
- Keep your target tenants in mind – If you’re hoping to catch the eyes of young professionals, your property should be close to transport and entertainment. If families are your ideal tenants, be sure you are close to schools. If students are your target, you’ll need to be close to universities or colleges. The type of property you choose will also depend on your target tenants, so know who your market is and choose accordingly.
- Look for outdoor space – You can increase the appeal of your property with a garden or designated outdoor space. Opt for low-maintenance options and features so it doesn’t become an overbearing cost.
- New vs old property – Newer properties tend to require less maintenance, which makes them more attractive to tenants. However, there is a certain charm to an older property that appeals to some tenants. You might be able to secure an older property at a lower cost, but you must be willing to invest in renovations to update it.
To profit from an investment property, you need to be financially savvy, a careful planner, willing to become a landlord, and of course, know when you need additional help. Seeking professional guidance when you need it, such as during the mortgage application process, can go a long way in ensuring you meet your financial goals and secure the right investment property.
Learn more about your buy-to-let options
Owning an investment property can be a lucrative venture, but it’s not without its challenges. If you’re considering becoming a landlord or are seeking information about buy-to-let mortgages, knowing what your options are is vital. To learn more about the mortgage process, contact one of the experts from Dental & Medical Financial Services today.