We all need a dream, especially while we’re in the process of digging ourselves out of debt and working towards financial stability. And it’s fair to say that people with clearly-defined goals achieve them sooner and more easily than those who don’t know where they’re going. One thing to set your sights on for future is investing in property. This can provide a long-term income to supplement wages and other investments. If you’ve always had an idle fantasy of having a portfolio of property, it’s not unachievable. However, a lot of planning needs to go on behind the scenes before you take action. Why not set a bigger-picture goal and start working towards it? It can be really motivating to have something tangible to work towards and inspire you.
All to your credit
First of all, you absolutely must check your credit score. Unless you’re fortunate enough to be able to buy a property outright, you’ll need good credit to be able to take out a mortgage in future. Very often, your credit score will also affect the amount you are allowed to borrow, so it’s worth working to improve that. If your credit rating has taken a hammering in the past, it can take a few years; so why not get a free credit report and score and check what you can do to improve your standing? You can often get a free one-off report from one of the big names in the UK, such as Experian.
We know where you live
The fact is that it is easier to get a loan for a buy-to-let if you are already a home-owner. So as soon as you can, you should plan towards buying rather than renting your own property. Buy-to-let mortgage deals are more plentiful at the moment ñ and often work out cheaper – than residential ones, but don’t think you can subvert the system by pretending you will be renting out your first home if you intend to live in it. Since the financial crisis, rules surrounding mortgages have become a lot tougher. In fact there are stiff financial penalties for misrepresenting the purposes of the mortgage you are applying for.
Onwards and upwards
Once you have a foot on the property ladder, re-mortgaging to release the equity in that property is a good way to get started. Alternatively, you can take out a new buy-to-let mortgage. You will still typically need a deposit of up to 25% of the asking price, so it’s imperative to continue your savings plan even when you have a home of your own. Remember to keep on reviewing your finances, because if you fail to meet mortgage repayments on either, it is at risk of repossession.
Aim your sights low(er)
Be realistic about what you can afford in terms of a second property. Let’s face it, you aren’t going to be able to afford Buckingham Palace in this lifetime. But if you are looking primarily at property ownership as a way to get a better rate of return on your money than a bog-standard savings account, an increasingly popular option is involvement in peer-to-peer (p2p) lending platforms. These schemes facilitate investment in rental property indirectly. In p2p investing, your money is placed into a pool to fund a diversified portfolio of property. You have no direct stake in physical property, but the platforms boast returns of up to 12%. They’re still in their infancy, though, so you should read the small print very carefully indeed before investing. If you prefer to own something you can see, you could consider investing in one or more units in student accommodation blocks ñ these kinds of additions to your portfolio can provide high-yield long-term returns and are a great way to start small while thinking big.