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How to start investing in property in 2021

It’s the start of a new year which, for many, will mean new goals and positive change.

Among your goals for 2021 could be to start investing in property – but where exactly do you start when you’re a complete beginner.

Our guide explains everything you need to know about buying your first buy-to-let property.

Property investment for beginners: Where to start

Investing in property can be a great way to build a new or additional income and create a legacy for the future.

Property is largely considered to be one of the safest investments you can make, but as no investment comes without a degree of risk, it’s important you carefully consider your options, including:

How you’ll finance your property investment

Consider how you’ll pay for your first buy-to-let property.

If you’re planning to get a buy-to-let mortgage, you’ll need a good deposit. Most buy-to-let mortgages require at least a 25% deposit.

That means for a property costing £300,000, for example, you’d need a deposit of £75,000.

Buy-to-let mortgages usually command higher interest rates, too, so you’ll need to factor in how well your projected rental income covers your monthly mortgage payments and other costs.

Other buy-to-let investment costs

As well as your buy-to-let property’s purchase price, you’ll also need to factor in:

  • Survey costs
  • Solicitor’s fees
  • Insurance costs
  • Stamp duty

Stamp duty on buy-to-let properties

Stamp duty rules for buy-to-let properties mean you’ll pay an additional 2% surcharge on top of regular stamp duty rates.

However, the current stamp duty exemption rate is the first £500,000 of a property’s purchase price, meaning you’d pay only the surcharge if your buy-to-let property costs less than that figure.

The current rates of stamp duty, however, are set to change back to pre-July 2020 rates from April 1, 2021, meaning only the first £125,000 of a property’s purchase price is exempt from the tax.

Your property investment goals

What kind of property investor do you want to be and what are your aims?

Think about whether you want to build up a property portfolio that could replace your current income.

Or whether you’re simply looking for one property to boost your income and your pension pot in the future.

Always think about the long-term goals you want to achieve through property investment, as this will help keep you focused.

Your investment location and property type

One of the most important decisions you’ll make as a property investor is where you want to buy.

Location is vital when it comes to buy-to-let properties.

You’ll need to think about:

  • Property prices in your investment area
  • Average rents in that area
  • Rental yields
  • Potential regeneration or investment in the area in future years
  • Transport links and employment in the area

How you’ll buy your first buy-to-let property

While it can be easy to simply fall into buying an investment property on the open market, there are other options when it comes to buy-to-let properties.

One of those options is auction.

Buying at auction can be a great way to secure a property quickly, while many properties at auction have great potential to add long-term value.

The buying process at auctions also falls under fixed timeframes, with purchases able to complete in as little as 28 days – meaning you’d easily beat the stamp duty deadline and potentially save a substantial sum of money.

Your target tenants

As well as establishing a good investment location, you’ll also need to consider who your tenants will be.

If you’re keen to attract families, you should be looking at larger properties which could stretch your budget but could also secure you more monthly rent.

Alternatively, if your investment location is a large student town or has a very young, professional workforce, you might want to consider a property that can be shared by multiple tenants – known as a House in Multiple Occupation (HMO).

HMOs can be lucrative but are far more complex than standard rental properties when it comes to legal and health and safety obligations.

How you’ll manage your buy-to-let property

Once you’re in a position where you’re ready to buy your first rental property, you’ll need to start thinking about how you’ll manage it – or if you’ll get someone to manage it for you.

Buy-to-let legislation is vast and complex but staying legally compliant is the single most important part of being a landlord.

By using a letting agent’s management services, you can help ensure you:

  • Get great tenants in your property, who are well referenced
  • Remain compliant with more than 150 pieces of legislation, including:
    • Gas and electrical safety
  • Fire, smoke and carbon monoxide safety
  • Deposit legislation
  • Right to Rent rules

A good letting agent will also look after:

  • Tenancy agreements and renewals
  • Rent collection
  • Maintenance and emergency work
  • Inventories and property inspections

Buying a UK investment property: Common questions

If you’re seriously thinking about investing in property in 2021, you might also be asking yourself:

Where can I invest in property in 2021?

When thinking about your property investment location, the South West should definitely come into your thinking – and in particular, Bristol.

Estimates place Bristol’s population above 500,000 by 2027, so it’s definitely a city on the up, while employment remains strong and there is a rising demand for great quality rental properties among the city’s varied workers, students and graduates.

It’s well connected, too, with the M4 and M5 motorways, a busy airport and great rail links.

Away from Bristol, Gloucestershire is also a county with some great property investment options.

Will house prices crash in 2021?

The coronavirus pandemic, alongside Brexit, has heightened talk of property market decline in recent years and months.

But the market has held up well against both, with Rightmove reporting 6.6% growth nationally in 2020.

The property portal has also predicted growth of 4% in 2021.

Of course, a drop in prices can often be favourable to investors, but it could also open the door to more first-time buyers who would otherwise be renting.

How much money do you need to buy an investment property?

The budget you’ll need to invest in your first buy-to-let property will depend on what you want to buy and where.

Whatever you decide to buy, you’ll need to factor in your 25% (or more) deposit, as well as all the other costs outlined at the start of this piece.

Further reading…

When setting out on your search to find the ideal investment property, there’s a lot to consider. Here are five things you’ll need to ask yourself before you start.

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