Property investments: What constitutes a good purchase? 

There have been all sorts of debates over recent years regarding property and whether or not it’s still a worthwhile investment for landlords around the country. 

It would be fair to say that the jury is still out – but that’s not the purpose of today. 

Instead, if you have decided that the property business is for you, we’re here to go over some key points that you should consider as you mull over options. Let’s now take a look at some of the telling signs that suggest if a property will constitute a good investment.

Are there any ground rents or service charges?

We’re going to get onto the importance of finding out the ‘true’ yield of the property shortly. But, for now, let’s focus on some of the hidden charges – namely ground rents and service charges.

Sure, we all know about mortgage repayments and even the smaller expenses, such as all of the insurance requirements. Something which often slips under the radar is the ground rents and service charges, which are often paid in apartment blocks.

These fees can equate to thousands per year, slashing your yield by considerable sums. Before making a purchase, establish how much these costs, are and how they are calculated in the long term. After all, they might be low at the moment, but the last thing you want is to be left with a huge annual bill later down the line.

What is your true yield?

It’s not just about the monthly mortgage repayments that landlords need to take into account when it comes to yields. 

In order to ascertain whether or not a property constitutes a good investment, it’s important to factor in all of the associated costs – including ground rents and service charges, as detailed in the first point.

Once you have all of the numbers at hand, it’s time to calculate your ‘true’ yield. This is simply the annual return on your investment, expressed as a percentage. 

For example, let’s look at a £100,000 property with an annual rental income of £10,000. If your annual mortgage repayments are £3,000, and your annual ground rent and service charges amount to £2,000, your true yield would be 5%. This is because your net income is £5,000 – not the £10,000 that some estate agents might claim on the property particulars.

Location, location, location

It goes without saying that the location of a property is key. 

After all, you want to be sure that your investment is in a desirable area, with a steady stream of tenants who are willing to pay good rent. 

Do your research, and take into account factors such as the upcoming developments, the regeneration of a particular area, or whether the property is situated in a desirable postcode.

Sure, if you’re not from the area in question, it can be a shot in the dark. However, the above are the points that you really should study. After all, if big changes are on the horizon, this could impact your rents (and even the value of the property) going forward. The result? Rents might not increase with inflation, while in the worst case, you could even be staring at a negative equity situation.

Of course, the opposite could happen as well, but it pays to be vigilant. 

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