Due to Covid-19, many investors are shifting from stock market to "Buy to Let" property due to low rates and high future potential due to relaxations in lockdowns. However, no investment guarantees a 100% success and there's always a risk of low demand or low housing prices.
All in all, Birmingham, often called the second city of the UK, is one of the best places for property investments in the UK as per Gladfish. It houses 4 major Universities(University of Birmingham, Birmingham City University, Aston University and Newman University) with 70,000+ students needing accommodation. Birmingham is also a base for many companies like Deutsche Bank, KPMG, Pricewathousecooper, and DLA Piper bringing in young professionals.
Here's exactly how to purchase an investment property in Birmingham:
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Do proper research
Any type of investment comes with a risk. The housing prices may increase, ensuring your profits even after paying your mortgage. There's an equal chance of the prices severely dropping, especially if Covid continues to be troublesome. If you know someone who is already an investor in Buy-to-Let properties, consider organizing an appointment with them. Reaching out to an independent broker may also help.
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Find a promising area
Consider who your ideal Tenant is. If your goal is renting to students, make sure you invest in an area close to a university. If you want young professionals to be your tent, purchase in an area with good transport facilities. Most people go for a property near their house. Don't ever do that! Since you're not the one who will be living in your invested property, consider the needs and demands of your ideal Tenant. For some more tips, check out this article by Senate Property Services.
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Consider your Options
There are 3 type for mortgages that you will find available:
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Fixed rate mortgage
In this type, the mortgage is fixed for 2-3 years after which it is transferred to SVR type.
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SVR Mortgage
In this kind of Buy To Let mortgage, interests increase as your Standard Variable Rate increases.
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Interest Only Mortgage
Here, the borrower pays only the interest for a definite period (20-30 years) and then pays the complete loan upfront after the period. This is the most famous type of investment, but you should have enough money to pay the entire loan at the end of the term.
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Tracker Mortgage
Here, your repayments and the interest rate track a base rate( usually the base rate of the Bank of England) and could change every month.
- Do the Math
This is one of the final stages of making investment. When you are considering a lender, calculate your monthly payments, total interest and the breakdown of yearly capital and interest you're bound to pay and total cost. You can do that manually or with the help of online tools like Mortgage Calculator.
You can also use the Mortgage Calculator to find out your monthly repayments with interest-only and fixed-rate mortgages. It's easy to use and they allow you to include and schedule and include your future interest changes.
While doing your maths, take into consideration taxes and the maintenance costs of your property as it is your legal responsibility.
As per the Chancellors, if you are a basic tax payer, you will have to pay 18% CGT and 28% if you are an additional rate taxpayer. You will also have to pay Income Tax as per your payments.
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Make the purchase and ROI
Consider the service of a broker to help you with the best deals and discounts. Make sure you trust them before you make decisions based on their suggestions.
Lastly, ROI is one of the first things you should keep in mind while investing in Birmingham or literally anywhere. Keep track of your ROI. Consult some experts to assist with getting the best return possible.
