Property investment is likely to give you a better return than your bank. But how much do you need to make that first property purchase?
Knowing how much you will need for your next investment is critical, but it doesn’t have to be hard. We look at how much money you need to make a buy to let property investment in the UK.
While most know that money in the bank is not the best way to generate passive income, often clients struggle to understand how much money they will need to make an investment into property, and how far that money will go with a buy-to-let investment.
One routine Baron & Cabot broker will work with you on in the initial call is understanding how much you would like to invest. Naturally, this is unlikely to be everything that you have saved, keeping money for a rainy day is important, as is being able to keep your money in a property investment long enough to give you the returns.
Buy to let mortgage LTV
The first port of call for you is to understand how much the mortgage lender will expect you to have as a deposit in the mortgage. As a buy-to-let investor you are a higher risk than you are as a home owner, simply because you are more likely to not pay your investment than the roof over your head.
Because of this mortgage companies will generally expect between 25% and 35% money on the property as cash with them lending the remainder. The vast majority of Baron & Cabot clients are able to invest 30% and under with the bank lending the remainder. This is what is known as ‘loan to value’ (LTV), how much the bank will loan to you against the value of the property.
Our starting assumption then is that we need at least 25% available by the time the property is completed.
On a low value property of say £100,000 this will mean we need at least £25,000 to start.
Stamp Duty
Although loan to value is not a cost as it is invested in the property, it is still money out of your pocket. One cost that you will not get back is stamp duty.
Stamp is the next step for planning an investment in a buy-to-let property in the UK. A stamp duty calculator like the one here is a great resource for planning this costs.
We will look at what you can buy with each bracket of savings in the article below.
Legal Fee’s
Your normal legal fee’s are an additional cost which should not be overlooked when making an investment. In general terms expect to pay in the region of £1,200 however each solicitor is different and you should ask your broker at Baron & Cabot to share the legal fee quotes when choosing a property.
Often legal fee’s are either at completion or split between exchange and completion (on an off plan property), understanding these costs when on a tight budget is significant.
Other costs
Additional costs you will be expecting are your mortgage broker costs, furniture pack if you are furnishing the property and broker fee’s (Baron & Cabot do not charge you admin fee’s). When deciding on furniture Baron & Cabot will in most cases have a preferred partner who can help, and they tend to range between £2,500 and £4,500 depending on size and spec of the property.
Budget Range
Knowing the budget you have will roughly give us the ability to buy the below property values:
£20,000 – £65,000 property investment
£30,000 – £100,000 property investment
£40,000 – £134,000 property investment
£50,000 – £165,000 property investment
Note that the above are reference points only and is a basis for a starting point, not a rule for all. A mortgage advisor through Baron & Cabot will be able to give you clear expectations as money saved.
Best area’s for your budget
Now that you have a rough idea of your costs you should speak to your broker at Baron & Cabot about the best area’s to invest based on budget range.
The very best investments may not always be in a city or town you are familiar with. Gathering the research information from your Baron & Cabot broker will help you with your first investment through us, after which your confidence will grow.
At this stage it is important to understand that the overall goal is to make the best returns, in the safest manner possible over a period of 5 years. Some investors make the mistake that being able to buy a 4 bedroom house in a poor area is better than a 1 bedroom apartment in a prime growth area. The goal is the return not the size of the property.
Purchasing a buy-to-let property should be a simple and stress free process, however planning with Baron & Cabot and understanding your own expectations and bench marks are key. While the information here is beneficial very little comes close to a business relationship with an advisor over the telephone or in person.
For more information about planning your investment feel free to email Mark on the address mark@baroncabot.com.
