Benefits and Risks of Buy-to-let Investments

by Bella Palmer

Buy-to-let properties are popular investment options not only in UK but across the globe; To-let properties appreciate in value over time and also provides regular stream of income. For an investor who prefers to manage properties and create wealth, To-let property is a natural choice. To-let properties have some advantages over asset classes such as equities and commodities. Physical storage of commodities has no assurance of capital appreciation and volatility in equities is an unavoidable concern. Also, the stream of income of income generated via equities is negligible compared with to-let properties. The value of equity generally comes down by the amount of dividend paid, but it is not the case in To-let properties. There exists a minimal correlation between income stream and capital appreciation in real estate markets across the globe.

Numerous factors comes to into  play in determining value of any investment, and in the case of real estate the location of the property and the type of the property (residential or commercial)are two factors that has more significance than anything else. Also, timing the buy and availing lower mortgage rates would significantly improve the return on investment. Liquidity is a prime challenge in real estate market and during market crash and banking crisis – it is next to impossible to sell properties, and also the market value of properties tends to come down during such periods. To add more woes, the lease owners of commercial properties could cancel the leases and walk away in bad times. Despite all these odds, Buy-to-let investment by all measures seems to be lucrative in nature due to several reasons such as increasing population and people migrating from one place to another for varied reasons. After all, Risk and opportunity are two sides of the same coin

Meticulous planning in acquiring and development of properties would help investors to avoid much of the problems associated with Buy-to-let Properties; managing properties is both capital intensive and timing consuming, and for the same reason calculating the yield becomes more than necessary. Targeting specific audience comes with both premium and downside because when a property is customized for specific group, the rentals can be increased; the owner of the property should be in constant touch with the market for effective capacity utilization. When properties are customized for students, the attractiveness of the property as a prospective home for family comes down. All costs involved in making the purchase and development of property such as agent fees, fees for financial arrangements and tax benefits should be considered before embarking on Buy-to-let investments. Financial Institution may not be willing to lend for properties that are targeting specific audience but may be interested in helping out in commercial ventures, and the ideals on lending vary from organization to organization.

It is always advisable to make investments in worst market conditions but to make such purchases and developments especially in the real estate market, the investor needs to have financial arrangements in place because during such times lending institutions are reluctant to borrow money. Last but not the least, the manager of the property should be empowered with the list of reliable service providers (plumbers, electricians and real estate agents) to successfully run the business.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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