September 1, 2022

What is Residential Property Investment?

Residential property investment is a type of strategy that involves purchasing a flat or house and renting it out to generate an income.

Experienced landlords and property developers across the UK invest in residential property to rent it out to tenants to receive a rental income and grow their wealth. As property investment is a big decision and comes with some risk, there’s a lot you need to consider if you’re thinking of investing for the first time. 

How do I Finance a Residential Property Investment?

If you want to invest in a residential property that you plan to let out to someone else but don’t have the immediate funds to do so, you will need to apply for a buy-to-let mortgage. A buy-to-let mortgage is ideal if you want to purchase property as an investment, rather than as a home to live in yourself. By renting out the property, your tenants will pay your mortgage for you and, ideally, provide extra income for you every month. 

What Costs are Associated with Residential Property Investment?

You will likely have to pay a higher interest rate and arrangement fees with a residential property investment mortgage than with a standard residential mortgage, plus you usually need a deposit of at least 25% of the property purchase price. The interest rate you pay will depend on how much you borrow, your current financial situation and the amount of rental income you expect to receive.  

If you talk to a local letting agent or take a look at similar properties available for rent in the same area as the property you want to purchase, you can get a better idea of how much rent you can charge.

The other expenses you need to factor in include:

  • Stamp duty – usually charged at a higher rate on investment property
  • Accountant fees
  • Solicitors fees – on purchase and sale or if you need to evict a tenant
  • Estate agency fees on sale and purchases
  • Tenancy and inventory fees
  • Repairs and maintenance
  • Annual checks and certifications
  • Buildings and landlord insurance
  • Rental voids and bills when the property is unoccupied for long periods
  • Capital gains tax should you sell your property at a profit

You need to also think about whether you want to purchase an investment property in your name or a company name. When you own a property as an individual, the rent you receive from tenants must be taxed as income tax. But if you decide to buy a property through a company name, the profit you make is liable to corporation tax. It’s worth asking an accountant for advice about this as they will be able to explain the tax implications to you.

What are the Benefits of Residential Property Investment?

Safe Investment: Although prices can fluctuate, investing in property is still relatively safe, and the value of your flat or house should increase over time. Of course, this means you could make a profit when you sell your property.

Demand: More people are renting, and until much later in life. So now is a great time to invest as you shouldn’t have any problems renting out your property.   

Generate Income: The rent you receive from tenants should cover your mortgage payments and expenses, which means you are getting someone else to pay off your mortgage for you. Renting out your property is also a great way to generate income, so long as you charge enough rent.

What are the Downsides of Residential Property Investment?

Void Periods: Lengthy void periods can end up costing you a lot of money because your mortgage and the bills still need to be paid. Every landlord experiences the occasional void period, so you will need to budget for times when your property is unoccupied.  

Unexpected Bills: You are responsible for taking care of any unexpected problems, like a broken boiler or a pest infestation on your property. Not only do you have to take steps to deal with the problem within a reasonable time, but you also have to pay for any emergency repairs. 

Managing Tenants: A difficult tenant can be costly and stressful. You might be lucky and only have good tenants who always pay their rent on time, but nearly every landlord will have to deal with a difficult tenant at some point.

Falling Property Prices: The value of a property can rise as well as fall, so you could get back less than you invest if you decide to sell your property later on down the line. With this in mind, you should consider up-and-coming locations and look for ways to add value to the property. 

How Do I Find the Right Residential Property Investment?

You need to consider your long-term goals and then identify your target tenant and potential areas to invest in property. The place you choose plays a role in the type of tenant your property will attract, as will the exact location of your property.

For example, if you invest in a house surrounded by schools, employers and amenities, it will appeal to families. A flat or house close to transport links will attract professionals, and property near a college or university is ideal if you prefer to have students as tenants.  

When you know where you want to invest and who you want to rent to, you can start looking for a property. You want to focus on properties that come with a good expected rental yield so that you can comfortably cover your mortgage payments and make a profit from the income. Using property websites can elevate your search for the perfect flat or house, and you can seek advice from local letting agents.  

If you’re a first-time investor, Provide can help you find the best mortgage deal to suit your residential property investment needs. Our easy-to-use platform lets you compare trusted lenders within seconds, and it matches your borrowing requirements with lenders who can lend against your particular criteria. 

Access The Best Deals

Submit your Photo

Choose a photo to upload and our team will add it into our community gallery

Contact Information