By Ashley Osborne | Head of UK Residential & Managing Director – International Properties
Investing in rental property can be a key to your long term profit and financial freedom. But buying and owning a rental property comes with its own set of considerations. Therefore, it is essential to start your investment the right way and at the right time.
When to Buy a Rental Property for Investment
To determine the best time to invest in a rental property, analyse the property market of the city you are looking to invest in.
Identify any investment hotspots, upcoming property developments, or new infrastructures planned in certain areas. For example, property prices in suburban towns of London and cities surrounding Vancouver are predicted to increase upon the completion of London’s Crossrail and Vancouver’s Evergreen Line. Infrastructure developments indicate where the market is headed, so keep an eye out for them.
Analyse property prices. This usually depends on whether the market is going through a cold phase (more sellers, less buyers) or a hot phase (more buyers, less sellers). The most profitable buy-to-let strategy is to purchase during a cold phase as property prices are lower. However, buying property during a hot phase can also be rewarding if you foresee a continued rise in demand.
Lastly, be aware of interest rates. As with property prices, interest rates on your mortgages go through a high and low phase too. It is best to invest when interest rates are low as it means lower repayments in the long run, and eventually lower overall cost.
The important thing to remember is to analyse the above factors collectively and align it with your goals.
How to Buy a Rental Property
First, think of the costs involved. These costs include renovations before you rent your property, insurance payments for unforeseen damages, finding tenants, and paying monthly mortgages. Ensure that you are aware of the local tax and regulations on rental property. For example, in London, you might incur the Stamp Duty Land Tax, whereas in Vancouver, you could be subjected to pay a levy of $3 per additional $1000, if your property is above a certain value.
Then, you will need to finance your purchase, unless you can afford one big lump-sum. The terms differ from provider to provider, so you will need to take the time to research various mortgage providers to determine the best one for your investment goals.
Lastly, you will have to find the right property. Some key elements to consider are:
- Location: The closer it is to public transport, schools, hospitals and shopping centres, the higher the demand for it.
- Future of the neighbourhood: Growing employment opportunities and lower number of property listings can be a good indication of a strong future demand.
- Property Developer: It’s always better to invest in properties by developers that have good track records.
Colliers International’s property search tool is great start to finding the best rental property that suits your objectives.