Invest In Research Before Investing In Property - 01/06/10
According to property lending specialist Auction Finance Limited, new investors need to be certain of the market and knowing the basic sums can help.
Last month one of the most popular mortgage information searches was for buy to let advice*, showing more people are keen to step into the potentially lucrative property market.
Conditions for landlords have been buoyed by low interest rates and strong demand from first time buyers. After a seasonal lull, March 2010 proved a strong month in the auction rooms and saw lots sold increase by 14% when compared to March 2009**.
Chris Baguley, director of Auction Finance Limited, which provides funds for auction purchases, explains:
"Before investing your money into any unfamiliar sector, whether it's equities or antiques, you'd want to learn the ropes. Property investment should be treated the same. If you're a newcomer, you need to learn and understand the rules that govern the conduct of auctions. Every property investor needs to get a grasp of the basic sums."
Chris Baguley offers five sums to ensure property investors get a secure and profitable home for their money:
2. Net yield - The fees added to the rental income expressed as a percentage of the full purchase price. This will tell you the return after fees, repairs and running costs. Net yield = (rental income - costs) / purchase price
3. Interest cover - The difference between actual rental income (less costs) and total mortgage repayments Interest cover = net rent / interest costs
4. Net rent cover - This tells you how low your rental income can drop before you're making losses. It's the interest against the net rental income expressed as a percentage. Net rent cover = interest cover / net rent
5. Capital Growth - The basic margin between the sale price and the original purchase price is the growth in your capital. Capital Growth = sales price / property area
Chris added:
* Price comparison site www.unbiased.co.uk
** www.eigroup.co.uk
