How to Work Out Whether a Buy to Let Property Investment Will Be Profitable
By: Sarah Roberts
Tags: Investment Tips, Property Market, Property Investment, Investing, Buy To Let

There are lots of reasons to invest in property. The main reason is the fact that property investment has the potential to grow your finances. Property investment isn’t, however, a simple route to riches. Before you dive into a property venture, you should be sure to read property investment advice. This will equip you with the tips and knowledge you need to identify the best opportunities.

If you’re considering investing in rental properties, take a look at these tips on how to spot the most profitable investments.

Seek Out Properties With High Yields

One of the best pieces of first-time investment property advice is to remember to focus on rental yields. So, to start, what is a rental yield?

Rental yields are a percentage figure which indicates the amount of return you can expect from your property investment.

To get the figure you take the expected yearly income then divide this by the property price. You then need to multiply the figure by 100 to find the percentage. With this in mind, if your property price is low in comparison to the expected rental income, you should generate some attractive yields.

The higher a property’s rental yield is, the more money you can make. What’s considered high can range between 5% to 10% + depending on your goals. For instance, if you purchased a property that was worth £120,000 with an expected yearly income of £8,400, your rental yield would be 7%.

If you invest in a buy to let property with a lower expected yield, it will be harder to make a significant return on your investment. One way to ensure your yield is higher is to purchase an off-plan investment property. Off-plan properties are those that haven’t been built yet, and come with benefits like below-market prices. This means that you can buy the property for a low price. Then, if rental returns are expected to be high, you’ll be left with a strong yield.

Listen to our podcast on off-plan investment properties

Keep Capital Growth in Mind

Capital growth is another key part of any investment. Capital growth, also known as capital appreciation, is when a property increases in value over time. This can happen for a number of reasons.

Prices will typically rise in areas where property is in demand, which is why city centre properties see such strong growth. Another reason for capital growth is regeneration. If an area is experiencing a lot of redevelopment and improvement, it becomes a more desirable place to live. This, in turn, makes property prices higher.

Capital growth is so important when looking for a profitable investment. If you sell your property later in life and it’s grown in value, you’ll profit from a large lump sum of money. For a lot of people, this can be the biggest benefit of property investment, especially if you’re investing in property as a method of saving for retirement.

To find the best areas for investing in rental properties for capital growth, you should pay attention to past growth trends. In the UK, for instance, the North West region has been growing in value. Predictions also show that this region will see a growth of 24% by 2024. By analysing past trends and future predictions, you can find the best deals for your property investment!

Make Sure There’s a Lot of Demand

In order to properly benefit from rental returns, you need to be sure that the area your property is based in generates a lot of rental demand. After all, without tenants, you won’t make any return on your investment.

To tell if an area has high rental demand, there are different pieces of property investment advice to keep in mind. One tip is to look for areas with a large population of young professional tenants.

Young professionals are typically those aged around 20–40 years old who are employed in a professional field. In the property world, young professionals are viewed as the most common tenant group, especially in the UK. This is because these tenants will usually not be ready to buy a home of their own yet, choosing to rent instead. Properties in the city centre are normally snapped up by this tenant type. Another common tenant type is a student. Students, of course, would seek out student accommodation so this only applies if you own a student property.

Areas with a large student or young professional populations tend to perform well in terms of rental demand. Another thing to look out for is rising rental costs. You can find this information on sites such as Zoopla, and it’s an important thing to look into for a lucrative investment. If an area has seen rental costs increase, this is a good indicator that demand is high. Try and be as specific as possible, however, as not all areas within a city will have the same potential. Focus on certain postcode areas to work out where you would be best investing.

Do you have any other pieces of first-time investment property advice for finding a lucrative opportunity? Let us know in the comments below. and check out our Publication, the Property Talk, for more great content.