How to invest for cash flow that could change your life
Property investment was a dirty word at the height of the Global Financial Crisis. Banks had been keen to lend to any Tom, Dick or Harry. When the bubble burst, unsustainable debt caused a catastrophic fall in investment property values.
Despite all the negative headlines at the time, long-term property investors weren’t fazed. You see, the private rented sector simply got stronger. People who had their homes repossessed still needed somewhere to live. Savvy investors not only weathered the storm, but they also picked up prime property at knock-down prices when everyone else was selling. Now those investors have got their personal ATM machines in the form of buy-to-let property.
So how do you buy an investment property that could become your ATM machine?
Understand the property and economic trend
Every investment market works in cycles. The economy works in cycles. There is no wrong time to invest in property – the right time to make a property investment is always now! The trick is to evolve your strategy through the property and economic trend cycle. Sometimes you’ll be able to drive better bargains. At some points in the cycle, you’ll find property investment opportunities which have the potential for incredible capital gain. Other times will be best for investing in buy-to-let property for market-beating yields.
These two pieces of investment education are keys to creating a profitable property investment strategy:
- Know where we are in the property and economic trend cycle
- Understand the difference between yield and growth in property investment
Research the location and buy the right property
If you buy a quality property in a quality location, the returns will come. Buy in the best places to invest in property UK – where people want to live. Think about what drives people’s decisions on location – shops, schools, transport links, major employers and major investment – and invest where these factors are strongest.
Once you have decided where to buy, decide what to buy. What type of renter is most common here? Should you buy a modern apartment near a railway station, the type of property which young professionals crave? Or should you buy a more traditional house near a school, for a market dominated by families?
Buy the very best property you can afford. The demand for it will be higher. Tenants will want to remain tenants for longer. The rent you can charge will be higher.
Invest for positive cash flow
If you want your property investment ATM, invest for positive cash flow. When the market is down, and property values are low (like they were in 2009), you will be able to find amazing investment opportunities.
The herd mentality in property investing tends to make prices overshoot at tops and bottoms of the cycle. When prices are falling, everyone wants to sell. It makes prices fall faster and farther than they otherwise would. This dynamic gives the wise investor an opportunity to negotiate even better bargains.
Suddenly, the property that had been valued at £250,000 a year ago is now on the market at £200,000. With a bit of wise negotiating, you might get the price down to £180,000 for a quick sale. But guess what? The person who wants to rent a property just like this will still pay the going rate of, say, £1,250 per month. Your yield just went from 6% to 8.3%. And what does this do for your cash flow?
Of course, even when property values are rising you can still buy in places where rental yields are strong. For example, in some areas of Manchester, you could invest with a yield of 9%. And Manchester is one of the property hotspots identified by our exclusive Property Investment Algorithm. Download your free copy of our Manchester Property Investment Guide to discover why.
Imagine investing in a £200,000 property in Manchester, with a 9% gross yield:
- Let’s say you put £60,000 down as a deposit, and use a buy-to-let mortgage at 4.5% to fund the balance.
- Your rental income would be £1,500 per month.
- Your mortgage interest payment would be £525 per month.
- It leaves you with a cool £975 per month (before property management fees, maintenance, etc.).
- Now, the real return on your £60,000 capital invested is 19.5% gross.
As I’ve discussed before, for spectacular real yield on your money, invest in property.
Six tips to buy your personal ATM investment property
- Evolve your property investment strategy through the property and economic trend cycle.
- Always invest in the best location.
- Buy the best property you can afford.
- Make sure the property is in good repair.
- Invest in property that will attract the most potential tenants (what I call an ‘everyperson’ property).
- Make sure your investment property manager runs complete background checks on prospective tenants.
A word of warning about investing for cash flow
Investing for cash flow can provide the income to change your life. Using a buy-to-let mortgage to do so leverages your investment capital, and pumps up the real yield on your investment. But don’t overleverage. If you do so, you might not be able to sell should you need to in a falling market.
Contact one of our team today on +44 (0)207 923 6100. We’ll help you find the best places to invest in property in the UK, and we’ll help you identify how property could help you achieve your financial and lifestyle objectives.
Live with passion
Brett Alegre-Wood
