When investing in a buy-to-let residential property, there are four main ways to make money, also known as profit levers. These include:
- Discount: Aim to buy the property at a discount, as small as it may be, as it will multiply over the term of your purchase when combined with profit levers 3 and 4. Be sure to do your own research on comparable properties to ensure the discount is real and not artificially inflated.
- Rental Income: The monthly rental income is the main source of revenue for a property investor and should be a major consideration. Be familiar with local market rents and aim to raise the rent each year by 3-5% to maintain a positive cash flow and enable future remortgaging.
- Refinancing: Every 2-4 years, consider remortgaging the property to release a lump sum income from the additional equity generated. The UK property market grows steadily and the value of a property doubles on average every 8-10 years, resulting in a yearly increase of around 8%.
- Equity Growth: As a property’s value increases, so does its equity. The initial equity in the property, typically 25%, will be retained even with refinancing activities and can be recovered upon sale, but is subject to taxation.
When doing your due diligence, always calculate the potential profit in these four areas. Remember, you make your money when you buy a property, not when you sell it.
You can follow me on Instagram @davethomasproperty for tips and advice on UK residential property investment and I am open for Joint Venture Partners for deals I post on my Instagram account. If you want to build your own property portfolio but don’t have the time, knowledge or experience, you can work with me and grow with me.
