Last updated: 21st September 2020
Why should you choose a buy-to-let strategy?
For a start, it’s the crème de la crème of strategies when it comes to property investment. But that doesn’t necessarily mean it’s the right strategy for you.
When starting your property investment journey, one of the most important factors you need to think about is what strategy you’re going to choose.
Because your strategy is going to be the driving force behind you achieving your short and long-term goals.
And right now, we’re going to help you decide if a buy-to-let strategy is the right choice for you.
Let’s take this right back to basics. Buy-to-let is pretty much the most basic property strategy you can get, and it’s quite hard to get it wrong (but it does happen!)
Now don’t think that basic is boring. It’s far from it. The more adventurous you get with your strategy, the more difficult it becomes to be successful – and the more work it’s going to involve.
So, in the simplest terms, buy-to-let is buying a property and renting it out.
If you choose a buy-to-let strategy, you’re going to benefit from short and long-term gain.
In the short term, you’ll be receiving rental income each month from your tenant. Once you’ve covered all your outgoings, the rest is yours. Whatever is leftover, you can either spend it, or save it. Or, bank it for your next deposit on another buy-to-let property.
In the long term, you’d expect your property to increase in value. If you bought a property now for £150,000, in 10 years time this could be worth around £200,000. That’d be a £50,000 uplift – plus the rental income you’ve banked during that time.
Tip: If you’re about to purchase your first investment property, we’ve got a buy-to-let checklist video here which you should watch before you do anything else.
One of the most important things you need to consider before you choose whether a buy-to-let strategy is right for you, is whether you’re in property for the long or short-term. Do you want as much rental income as possible right now, or are you happy to hold out for capital growth.
To help you make that decision, we’ve put together a handy guide to help you understand why property goes up in value.
Another advantage with a buy-to-let strategy is the freedom of choice. You don’t have to choose between houses or apartments like some people think. And you certainly don’t need to be afraid of leasehold – although you do need to make sure you do your due diligence. (At Property Hub Invest, we make sure that the leasehold is at least 125 years).
Don’t let the freehold vs leasehold debate sway you one way or another. The main thing you need to focus on is if the final property yield figure matches what you want to achieve.
Naturally, most investments have disadvantages. But with a buy-to-let strategy, there are less risks than with other strategies.
The worst problem you could possibly have is your property being in negative equity – although the reality of that actually happening is pretty slim if you’re smart when you purchase.
There’s always going to be other risks along the way, such as a tenant not paying rent and you needing to start eviction proceedings. Or your property sitting empty and you’re not generating an income. These issues aren’t limited to just a buy-to-let strategy. No matter what strategy you choose, these problems will still need factoring in.
And then there’s the risk of things breaking or blowing up and you need to make repairs. At some point, you may find that all of these things happen at the same time, but again, that can happen with any property – even your own residential home. It comes with the territory.
As long as you’ve been sensible and you make sure you’ve put a contingency fund away for maintenance repairs, these storms should easily be weathered.
Making mistakes is inevitable, it’s what makes us human. But if you can, learn from the experts. Here’s some mistakes that Rob & Rob have made over the years that you can try to avoid.
The biggest thing you need to ask yourself is ‘are you in this for the long term or the short term?’ That’s what’s going to determine if a buy-to-let strategy is for you or not.
The biggest barrier to entry is the deposit needed to invest in buy-to-let property. Unless you’ve got a pot of cash stacked to purchase property outright, you’ll need at least a 25% deposit to purchase your first property with a mortgage.
The quickest way that many property investors get started is to release equity from their own home, which we’ve covered here, but not everyone has the means to do this.
If you think the buy-to-let strategy suits you best – i.e you’re in property for the long haul, you want the income but also the win of the capital growth, and you have the funds to get started, then you’re pretty much ready for the next step of setting some goals.
You need to get clear on what your end goal is because let’s face it, you need to know why you’re doing this in the first place. We’ve got lots of goal setting resources including this free property goal setting course – but if you’ve already nailed down your goals and are ready to be looking at buy-to-let deals, book your free strategy meeting with our Property Hub Invest team. And if you’re not sure what to expect, you can find out here.
With any property investment strategy, one thing you need to be prepared to put the time and effort into is your research. If you go into a deal just because it looks good on paper, you run the risk of it failing. You need to research the fundamentals of what makes a property a good investment before you part with any cash whatsoever.
We’ve put together a list of the due diligence we do on behalf of our clients that you can use as a basis to start your own. But if you’re time poor, you can always speak to an expert who will do all the groundwork for you. There’s a handy video here on working with property investment companies. Once your research is done, you just need to be ready to say yes when the right deal comes to you.