Investing in property can be a lucrative venture. It provides the opportunity for a steady rental income and long-term financial security. However, securing funding for investment properties is very different to securing a mortgage for the home you live in. It takes more careful planning and consideration. Here we explore tips to help you successfully navigate the process of funding an investment property.
Assess your financial situation
Before diving into the world of property investment, conduct a thorough assessment of your financial situation. Determine how much capital you have available for investment, including savings, investments, and potential sources of financing. Establish a budget and set clear financial goals for your venture into property investment.
Explore mortgage options
Mortgages are a common financing option for investment properties. Research the different types of mortgage available for investment properties, including buy-to-let mortgages and commercial mortgages, depending on intended use. Bell Mortgage Solutions are on-hand to talk through available options. We’ll compare interest rates, terms, and eligibility criteria to find the best mortgage option for you.
Build a strong financial profile
Lenders assess the financial stability of borrowers when considering mortgage applications for investment properties. Having the strongest possible financial profile is going to work to your advantage. You can prepare for this by maintaining a good credit score, reducing debt, and demonstrating a stable income. Prepare documentation such as tax returns, bank statements, and proof of income to support your mortgage application.
Save for a larger deposit
A larger deposit can improve your chances of securing favourable financing terms and lower interest rates for investment properties. Good savers can accumulate a more substantial deposit. Ideally you should aim for 25% to 40% of the property’s purchase price. This is much higher than many deposits for residential properties that are not investment properties. Existing savings, assets or investments can increase your overall deposit.
Conduct due diligence on the investment property
Before committing to an investment property, conduct thorough due diligence to assess its potential for profitability. First determine if you intend to let out the property or renovate it and sell it on. Factors you assess should include:
- Location – is it desirable?
- Rental demand – are there many other rental properties nearby?
- Property condition – is it going to cost you much to repair any damage now or in the future?
- Potential rental income – what is the going rate in that area?
Examine the property to uncover any potential problems that could affect the value of the investment in the long term. This might include risk of flooding, for example.
Create a strategic investment plan
Developing a strategic investment plan is vital. It must align with your future financial goals, and you must be prepared to take risks. Define the income you’re hoping to make. If letting the house, for example, how much rent is needed to cover the mortgage payments and still make profit? How likely is it that you’ll get someone interested in renting in that location? How much do you expect the house value to increase over the next few years?
Factors including government levies, or a rise in the Bank of England* base interest rates could impact your plan. Remember to review and adjust your plan to adapt to the current market conditions.
With the right approach, plus advice from our dedicated staff, property investment can be a rewarding path to financial growth. Contact our team to discuss your requirements.
Please note: Your home may be repossessed if you do not keep up repayments on your mortgage.
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The information contained within was correct at the time of publication but is subject to change.
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