Can I Afford an Investment Property?

Amy Jackson
Amy Jackson
Property Editor
Updated 19 November, 2021
5 Min Read

Can you afford an investment property? Can you afford an investment property?

For many people, investing in a rental property is as easy as dipping into a savings account or growing a portfolio with another investment. 

For others, however, buying an investment property is an ultimate goal and requires a lot of planning, saving, and careful consideration. 

While it’s definitely a lucrative strategy to follow, investing in property is by no means easy if you don’t have a lot of money readily available to you. If you’re wondering how to buy property with no money down, you’ll find the entire property investment process near impossible.  

But what is actually classed as a lot of money when it comes to buying rental properties? And could you buy your first rental property with the funds you already have available? 

If you’re interested in buying a rental property but asking ‘can I afford an investment property?’, this blog post is for you. 

Here, we’ll take a look at: 

  • Typical costs involved with property investment. 
  • Average property prices for investment properties in the UK. 
  • How much money you may need to buy your first rental property. 

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Property investment for beginners - Questions to consider Property investment for beginners - Questions to consider

Investing in Rental Property for Beginners – Questions to Ask Yourself 

Before considering buying an investment property for the first time, real estate investors are encouraged to ask themselves the following questions. 

  1. Why am I investing in property? 
  2. Am I in a good financial position? 
  3. How do I plan to pay for my rental property? 
  4. How much money do I have available to invest? 
  5. Will the property bring in positive cash flow? 

Let’s explore each of these questions in a bit more detail. 

Why Am I Investing in Property?

Before considering whether you can afford to buy an investment property, you should think about the reasons why you’re looking to invest in a rental property in the first place. 

This will help you understand more about your investment goals, which, paired with your budget, can help you identify the right opportunities for when you start searching for a property. 

Is your reason for investing in property simply that you want to increase your monthly and yearly income? 

With ownership of a rental property, you will receive regular income from the rent paid by tenants. 

This rental income will vary in price depending on your investment. If high regular rental returns are a crucial goal of yours, you should focus on investment opportunities with high rental yields. 

Are you looking to invest in a rental property as a way to build a lucrative investment portfolio? 

Many investors choose to build a sizeable portfolio of investment properties. This way, they can make enough money to eventually live off their properties and treat their venture as more of a business. 

Those with smaller investment budgets can undoubtedly build a property portfolio over time but will often do so more gradually rather than buying multiple properties at once. 

For a lot of people, buying an investment property is used for financial security. Investing in a profitable rental property can leave investors with a significant return on investment by the time they come to retire. 

Often, the amount you can generate from owning an investment property is greater than the amount generated by a typical pension scheme. 

If this is the main goal for you, then a combination of high rental yields and strong capital appreciation is needed. 

Are You Looking to Increase Income?

Is your reason for investing in property simply that you want to increase your monthly and yearly income? 

With ownership of a rental property, you will receive regular income from the rent paid by tenants. 

This rental income will vary in price depending on your investment. If high regular rental returns are a crucial goal of yours, you should focus on investment opportunities with high rental yields. 

Are You Starting an Investment Portfolio?

Are you looking to invest in a rental property as a way to build a lucrative investment portfolio? 

Many investors choose to build a sizeable portfolio of investment properties. This way, they can make enough money to eventually live off their properties and treat their venture as more of a business. 

Those with smaller investment budgets can undoubtedly build a property portfolio over time but will often do so more gradually rather than buying multiple properties at once. 

Are You Saving For Retirement/a Financial Goal?

For a lot of people, buying an investment property is used for financial security. Investing in a profitable rental property can leave investors with a significant return on investment by the time they come to retire. 

Often, the amount you can generate from owning an investment property is greater than the amount generated by a typical pension scheme. 

If this is the main goal for you, then a combination of high rental yields and strong capital appreciation is needed. 

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Strong enough financial situation to invest? Strong enough financial situation to invest?

Am I in a Good Financial Position?

Now it’s time to be honest with yourself. Are you in a strong enough financial position right now to make such a big commitment as buying a rental property? 

Being financially secure doesn’t just mean having the cash available to purchase a property. You should also consider the following questions. 

Do You Have Any Debts? 

If you have any significant debts, you should think about paying these off before you start hunting for a rental property. 

Whether you’re behind on your credit card payments or have an outstanding loan agreement that needs paying off, making sure everything is finalised before you embark on a new financial commitment may be a good idea. 

Do You Have a ‘Rainy-Day Fund’? 

A rainy day fund (otherwise known as an emergency fund) is a sum of money you have saved away that can be used in the case of an emergency. 

Everyday costs can arise even without owning a rental property. Every homeowner can relate to unexpectedly forking out a considerable sum of money to fix minor issues around the home. 

When you own an investment property, these unexpected costs can pile up fast. You also want to make sure you have some extra cash available for other unexpected life events like losing your job. 

Experts suggest saving at least three to six months worth of living expenses. If you don’t already have this, you may want to consider building up your rainy-day fund before buying your first investment property. 

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Different ways of paying for your investment property Different ways of paying for your investment property

How Do I Plan to Pay For My Rental Property? 

Paying With Cash 

For some investors lucky enough to have a large sum of money, paying for their property with cash is their favoured option. 

When paying with cash, you won’t have to worry about staying on top of mortgage payments and will have full ownership of your property from the get-go. 

Of course, for those questioning ‘can I afford an investment property?’, this may not be the most realistic option depending on the amount of cash you have available. 

Paying With a Buy to Let Mortgage 

Using a buy to let mortgage is one of the most popular ways that many investors fund their rental property purchase. 

A buy to let mortgage allows those with a smaller budget to consider opportunities out of their price range if just paying for the property with cash. 

With a buy to let mortgage, you’ll put down a percentage of the property price for a deposit and then make a regular mortgage payment each month to repay what you owe. 

The beauty of owning a rental property is that the returns you make each month will typically cover the mortgage payment costs while leaving you with extra income of your own. 

Paying With a Payment Plan 

If you plan to buy your investment property through a property investment company like ourselves here at RWinvest, then paying with a payment plan may be something to consider. 

Payment plans allow investors to split the cost of a property purchase price into smaller chunks of cash. 

This makes funding investment property purchases more manageable for those who do not have the total sum of money available straight away. 

A payment plan could be a good option for your rental property investment venture, but keep in mind that you will need to put down a deposit of cash upon initially buying the property and then pay the remaining instalments further down the line (usually when the property is complete if investing in off-plan). 

Therefore, you will need to be sure that you will have the necessary amount of money at hand by the agreed date. 

An example of a typical payment plan could be to pay 50% of the property price on reservation/initial purchase and then pay the final 50% upon completion. 

How much money do you have available to invest? How much money do you have available to invest?

How Much Money Do I Have Available to Invest? 

This stage is perhaps the most important of all when embarking on your first property investment purchase, as it’s the stage that you will think about how much money you’re actually willing to invest and establish an investment budget. 

It’s possible to invest in property with a range of budgets, and you may be surprised how little you need to get on the buy to let property ladder. 

Can You Afford Your Deposit? 

If you are thinking about using a buy to let mortgage for your investment, you should consider how much you can afford in the form of a deposit. 

Generally speaking, you will need around 25% of your property purchase price ready for a down payment. 

And, of course, the amount you may end up paying to secure your investment property will differ depending on the overall property price. 

For instance, if you are buying an investment property worth £100,000, you will need to pay a down payment of at least £25,000. 

Think about how much money you have available for a down payment, and then you’ll gain a better idea of the property price you can afford. 

Can You Afford Property Taxes? 

There are different taxes involved with owning a rental property. The main ones for you to factor into your purchase include: 

  1. Stamp duty tax  
  2. Rental income tax. 

Stamp duty tax is a tax you’ll pay when first buying your rental property. Rental income tax is a tax you’ll make on any income generated from your investment property. 

The cost of your taxes will depend on the overall price of your property, and the amount of rental income you generate from your investment. 

Use our free stamp duty calculator to determine how much stamp duty tax you could potentially be paying for your buy to let investment. 

Can You Afford Maintenance Costs? 

There are different maintenance costs involved with running a rental property. 

This could include anything from having to re-decorate in between tenancies to paying for unexpected household issues such as plumbing problems. 

This is most likely where your emergency fund will come into play, but you should also think about generating enough rental income to cover unexpected maintenance costs that arise. 

If you don’t wish to manage the property yourself, you’ll also need to contemplate hiring a property management company to run the day-to-day duties of owning a rental property on your behalf. 

A property manager will find suitable potential tenants, deal with rent payments, and respond to tenant issues. Many investors find having a property manager highly beneficial, but this will incur an extra cost that you’ll need to factor into your budget. 

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Will the Property Bring in Positive Cash Flow? Will the Property Bring in Positive Cash Flow?

Will the Property Bring in Positive Cash Flow? 

Most investors will generate enough money through rental income to cover the cost of rental property mortgage repayments while still having some cash leftover. 

This ties into positive cash flow, which in buy to let terms, means an investment property where the income is higher than the outgoings and expenses of the property. 

You want to be sure that your property is bringing in positive cash flow so that you’re actually making significant returns through your investment. 

How Much Rental Income Can You Expect? 

An excellent way to work out whether you’ll get positive cash flow from your investment is to think about your expected rental earnings. 

Depending on how you plan to invest, it may be tricky to find out exactly how much rental income you can generate from your investment. 

If you’re looking to buy a property through a property investment company like ourselves at RWinvest, you will usually purchase a property with an assured rental income for a set period of time. 

This means that you will know exactly how much rental income you should expect during at least the first year of your investment. 

If you’re planning on buying your property more independently, you’ll need to work out your potential earnings based on average rental returns for similar properties in the area. 

You can use tools such as Zoopla’s Area Guide to check out average rental prices in different postcode areas around the UK. 

It’s a good idea to use a ‘can i afford an investment property calculator’ to help you understand how much you need to make in rental returns for positive cash flow. 

Click the link to use our own helpful rental income calculator now. 

Don’t Have Enough Money to Invest in Property? Consider These Options

If you’ve figured out that you don’t have enough money available right now to invest in your ideal property, you might want to consider the following options. 

These options may help you get one step closer to your goal of investing in a rental property in the UK. 

REITs, also known as Real Estate Investment Trusts, are similar to stock market investments. Rather than buying a property of your own, REITs allow you to invest in a company or organisation that owns or manages investment properties. 

This means you can invest as much or as little as you want like you would with a stock market investment. 

The returns aren’t likely to be as significant as they are when you own a rental property and take advantage of the full rental income, but investing in REITs could be worth your while if you want to get into the property market without a lot of cash. 

If you decide that you don’t have enough money right now to invest in property in the way that you want to, you could always just continue saving money until you have a large enough sum to get started. 

After all, it’s not worth buying an investment property just because it meets your budget. You also have to think about whether the property will bring you the rental returns that you need. 

If this means waiting a little longer until you have more money available, then continuing to save might be a smart move. 

If you already own your own home and you have a lot of equity against it, an option could be to borrow against your home and extend your existing mortgage to release the cash to be invested elsewhere. 

Whether or not you can do this will depend on the mortgage provider you use and whether you meet the required criteria. 

You should weigh up the potential pros and cons of this option. Think about if investing quickly in property is your main priority, or if you would be better avoiding borrowing against your primary residence and waiting a little longer until you have the funds needed to get started. 

Another option could be to borrow money from friends or family and then pay them back at a later date – a little like having a buy to let mortgage but without all of the legalities involved. 

The biggest risk of this option is that you could end up unable to pay your friend or family member back if your property fails to bring in enough rental income. As a result, you could end up damaging existing relationships for the sake of your rental property purchase. 

Another possible option that may work for you could be to invest with a partner. 

This would mean that you are not the sole investor of the property. You have another person buying it with you, and therefore have a combined income available to purchase the property. 

We discuss the pros and cons of investing with a partner more in our helpful blog post. Click the link below to read. 

Read our blog on investing in property with a partner.

If you’re looking to make some extra cash from property, you could always consider renting out a room in your home and listing it on short-term rental sites such as Airbnb. 

While not the kind of investment property strategy you may have initially had in mind, renting out a room in a home you already own could be a good way to get your foot in the door. 

This could also get you used to generating some form of extra income, which you can then put aside and add to your savings to be used towards your first official rental property investment. 

Consider REITs

REITs, also known as Real Estate Investment Trusts, are similar to stock market investments. Rather than buying a property of your own, REITs allow you to invest in a company or organisation that owns or manages investment properties. 

This means you can invest as much or as little as you want like you would with a stock market investment. 

The returns aren’t likely to be as significant as they are when you own a rental property and take advantage of the full rental income, but investing in REITs could be worth your while if you want to get into the property market without a lot of cash. 

Keep Saving

If you decide that you don’t have enough money right now to invest in property in the way that you want to, you could always just continue saving money until you have a large enough sum to get started. 

After all, it’s not worth buying an investment property just because it meets your budget. You also have to think about whether the property will bring you the rental returns that you need. 

If this means waiting a little longer until you have more money available, then continuing to save might be a smart move. 

Borrow Against Your Home

If you already own your own home and you have a lot of equity against it, an option could be to borrow against your home and extend your existing mortgage to release the cash to be invested elsewhere. 

Whether or not you can do this will depend on the mortgage provider you use and whether you meet the required criteria. 

You should weigh up the potential pros and cons of this option. Think about if investing quickly in property is your main priority, or if you would be better avoiding borrowing against your primary residence and waiting a little longer until you have the funds needed to get started. 

Borrow Money From Friends or Family

Another option could be to borrow money from friends or family and then pay them back at a later date – a little like having a buy to let mortgage but without all of the legalities involved. 

The biggest risk of this option is that you could end up unable to pay your friend or family member back if your property fails to bring in enough rental income. As a result, you could end up damaging existing relationships for the sake of your rental property purchase. 

Invest With a Partner

Another possible option that may work for you could be to invest with a partner. 

This would mean that you are not the sole investor of the property. You have another person buying it with you, and therefore have a combined income available to purchase the property. 

We discuss the pros and cons of investing with a partner more in our helpful blog post. Click the link below to read. 

Read our blog on investing in property with a partner.

Rent Out a Room in Your Home

If you’re looking to make some extra cash from property, you could always consider renting out a room in your home and listing it on short-term rental sites such as Airbnb. 

While not the kind of investment property strategy you may have initially had in mind, renting out a room in a home you already own could be a good way to get your foot in the door. 

This could also get you used to generating some form of extra income, which you can then put aside and add to your savings to be used towards your first official rental property investment. 

Investing in property with RWinvest Investing in property with RWinvest

How Much Do I Need to Invest in Property With RWinvest? 

Here at RWinvest, we have property investment opportunities to suit a range of budgets. By finding properties in buy to let hotspot areas like Liverpool, where property prices are affordable, we’re able to offer our clients the best property deals. 

Many of our properties can be purchased with an initial payment of only £50k or less. Our payment plans allow investors to pay a portion of the property price to secure the investment before finalising their payments once the off-plan property is complete. 

If you would like to discuss our payment plans and property prices for our current investment opportunities in more detail, get in touch today. You can contact us via the details on our contact page or start a live chat with one of our agents. 

For information on how to invest in the UK with a range of budgets, check out the following guides: 

How to Invest £50k in Property 

How to Invest £100k in Property 

How to Invest £500k in Property 

How to Invest £1 million in Property 

Liverpool L1 City Centre Postcode

The Mill

Invest With £60,000

Liverpool Prices from £139,950

Assured 6% NET Rental Return

Grade 2 Listed Building

Exclusive Investment Opportunity
Liverpool Prices from £125,995

6% Rental Yields

Stylish Liverpool Apartments

Off-Market Property
Manchester Prices from £200,000

5% Projected Rental Return

Amazing Onsite Facilities

Disclaimer 

This blog post is presented as a rough guide and should not be taken as financial advice. Seek out professional advice from a financial advisor if you need more information on the cost of investing in property. 

Amy Jackson
Amy Jackson
Property Editor

Amy Jackson is the property editor at RWinvest. Amy has over three years of experience working in the property content sector and has a keen eye for finding the latest news, statistics, and must-have property investment information.