Profiting from property

You don't need A-levels or a PhD to get on the road to making money from investment. But there are a few things you ought to remember if those investment plans of yours are to succeed.

Have a little patience

The first thing to have is patience. If you're buying new, you may have to wait over a year for it to be ready, and if you're aiming to renovate a run-down old house you will have to organise your own building work. One way or another, the process will very likely take longer than you first thought.

Do your homework

Be aware of the risks as well as the benefits - and take advantage of any advice you can get; friends who have entered the buy-to-let market, websites, even sympathetic estate agents. If you're planning to rent out your investment, make sure you explore the local market, so that you can maximise the amount of rent you can expect to get. Find out as much as you can about the area both good and bad; the schools, the public transport links, the crime rate, as well as how much properties in the area have been selling for lately.

Also keep an eye on the way prices have been developing over the past few years in that area. And last but definitely not least, keep one eye out on future developments. In major cities especially, look for places that are earmarked for regeneration or significant transport investment, for example north-east London.

Money talks

Make sure you do your sums before you go down that road. Can you afford it? Will the bank give you a second mortgage? Will your investment actually bring in any money? A buy to let mortgage is likely to come with a Rent to Interest Cover of 125 to130%. This means that you'll need to show that the monthly rental you get from your property will amount to 25 to 30% of the monthly interest payment you paying on the mortgage. This is partly to cover for the inevitable 'voids', those periods when you won't have any tenants. According to the Association of Residential Lettings Agents (ARLA), the average void period a landlord suffers in one year is 27 days.

It is also sensible to put by a contingency sum because, like your residential home, your buy-to-let property will also need maintenance, the cost of which lies with you. Bills for repair work such as broken pipes and damage caused by tenants will ultimately also fall on your door mat - not theirs.

23 March 2007 © Moneyextra.com

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