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How much money do I need to buy an investment property?

Updated: Sep 5, 2018

Not as much as you probably think..... is the short answer! But this is a topic that I discuss with investors at lease twice a week. There is no set answer for this, which is why it is so important that you first have an understanding of how much you can afford or how much you are comfortable to invest. Everyone's circumstances are different and it is your consultants job to extract the necessary information and understand this.


Cash required to invest
How much is enough?

Property prices have changed drastically over the last couple of decades, as a 33 year old, I often overhear stories of how our parents and their parents were able to buy a 3 bedroom semi-detached for £30,000. Oh how times have changed. Okay it was relative to the value of money at the time but also, property was ridiculously cheap and more accessible.


The average property price in the UK is now £228,000 but there are huge prices differences between certain regions, towns and cities. For example, the average price for a 1 bed apartment in London is now just over £384,000 while you can buy a 1xbed in Blackpool for less than £50,000. While it may initially seem that buying multiple cheap properties is more appealing, from an investment perspective it doesn't usually make financial sense. Do the math.


So now you have a full understanding of your financial situation, you can begin your search for a suitable property. Will you buy outright or will you borrow money from a bank and apply for a buy-to-let mortgage? Using a simple example, banks are now offering up to 80% loan to value (LTV) so if you are buying a property for £100,000, your cash requirement is £20,000. You will also need to factor in:

- Agent fee/finders fee (generally 1%)

- Legal fees: typically up to £1,500

- Stamp duty - Let's stick with 3% for now

- Furniture costs - approximately £3,000

- Mortgage arrangement fee


Using this example, your total cash outlay is approximately £28,500.


I use this example as it is easy to grasp but also it is approximately the amount I invested in my first buy-to-let. You can buy cheaper or more expensive property and your cash outlay will reflect this.


Many people are put off from buying investment property because they feel it is beyond their means and only for the wealthy. But this is not the case. Buying property outright is often not affordable and often not the best use of cash. While interest rates are so low, investing through a mortgage will open many doors and allow you to buy property, that previously you never thought possible.


How much you spend on an investment property is up to you and should be based on what you are comfortable with and can afford. I have seen many solid investment opportunities priced at around the £70k mark, requiring cash of less than £20,000. But do your research, speak to an industry expert and establish how best to invest your cash.


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