4 Best Places To Invest - Part 3 Property investing
The question you need to ask yourself is what do I want to invest in? Many people choose to start with investing in their own home as this will give the leverage for further investments, whilst others want to start with a rental property.
This post will offer a general introduction to property investing in the UK and will focus on making money owning your own home.
Your home – to rent or buy?
So, the Big American real estate tycoon Grant Cardone doesn’t suggest buying your own home; he thinks you should rent where you live and buy places to rent out as an investment. Is this a good idea? Surely a man with such a large portfolio of property investments isn’t wrong? From our experience, reading and training thus far, this decision very much depends on where you are intending to purchase or rent.
There are of course pros and cons to both -renting means you have the flexibility to move around until you find the location you prefer; renting means potentially less hassle and fewer upfront costs. Whilst buying (our choice) has a host of other advantages.
In London for example, the cost of rent is extortionate! We live in greater London, 3 Zones from the City centre; rent for a 1-bedroom apartment is around £1,200 a month not including bills, that is crazy and for us it made more sense to buy. Renting we would be paying off someone else’s mortgage for them and not be on the property ladder ourselves…
How is this possible in such an expensive housing market?
If you live in London then this could be a daunting thought considering the average house price is £671,989. Consider the average house price in the UK is £231,855 and it quickly becomes apparent just how expensive it is to live in London.
Let’s look at two examples:
In London: If you put 10% deposit down on a £400,000 house you would need a £40,000 deposit plus legal fees (£2,500) and stamp duty (£10,000). It is not easy to come up with £52,500 and this becomes nigh on impossible if you are already paying £1,200 rent!
Outside of London: If you put 10% deposit down on a £250,000 house you would need a £25,000 deposit plus legal fees (£2,500) and if it’s your first home you won’t pay stamp duty on this price. Again, coming up with £27,500 is a challenging but much more feasible task. Mortgage repayments on this over a 35 year period are £865 a month.
So how do you do it?
- Location – decide on your saving goal: Is London a must? Can you move to a slightly further commuter town? Or for even cheaper properties move further afield?
- Budget -Track your spending and create a budget you stick to
- Move in with parents if possible so you can focus on saving
- Share with a partner and halve your costs
- Ultimately – SAVE SAVE SAVE!
The good news
Although all of the above seems very daunting, once you have managed to save that money, your repayment mortgage would work out much cheaper than if you were paying rent. Plus, it means you’re on the property ladder – a fantastic place to be for future investments!
As well as being cheaper, an added bonus is you won’t be asked to leave when your tenancy agreement runs out – your home is yours! However, the best part about owning your own property is the value generally goes up yearly! In fact, some have even claimed properties double in value over a 10-year period. This isn’t always the case – check out the video below by Peter Jones – The property teacher for more information:
It is also important to bear in mind there is a property cycle which is useful to look at and understanding the best times to buy will save you a substantial amount of money! For more information listen to The Property Hub Property Podcast
But how can I make money from owning my own home?
Once you’ve saved, purchased your home and moved in – how can you make money from it? There are several options:
- Why not rent out a room or two? If you decide to rent 2 of the rooms in your home in London for example at around £550 a month each totalling £1,100 – your mortgage would be pretty much covered.
- An alternative to renting out rooms in your house long term, is signing up to Air BnB. You can charge around £30+ per night in the likes of Blackpool and even more in London. This will allow you to make additional income without having to share your house for long periods of time. Depending on the location of your property, you could end up collecting the same amount (or more) per year as rent.
- Remember if you buy a house with potential for development, you can add value to it and use the growth for future investments. Add a new kitchen, bathroom or loft conversion and you’ll see your investment grow (and be able to charge more rent!)
- Have an extra space in the garden? An old garage you don’t use? Why not save and convert it to a one bed flat?
Perspective: Who-ever said owning your own home isn’t an investment lacked creativity
A real-life example: I know a chap that lives in a downstairs room in his 3 bed house. As well as renting the 3 rooms upstairs, he turned his living room and dining room into bedrooms and rented them out as well. He turned 3 beds into 5! £500 a room = £2,000 a month. He then built an annex in the garden for his own privacy and comfort (kitchen and tv room). After time he decided to do a loft conversion adding 2 more rooms (£3,000 a month). This man literally makes £3000 per month while he sleeps! In addition, his property is now worth around £200,000 more than when he bought it.
So where should you start?
That is a very personal choice, we cannot tell you. However, we can tell you what the End-Richs did: we started with purchasing our own home and renting out one of our rooms. For us it was fantastic, it helped us with a little extra monthly income and we made a life-long friend who we now consider family. Win win!
Coming soon to the End-Rich blog:
- Buy-to-let (Single family lets)
- HMO (House in multiple occupation)
- Buying a property for serviced accommodation
- Rent to Rent
- Lease option agreement
- Commercial investing
- Rent to buy
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