Can I Afford an Investment Property?

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For many people, investing in property is an investment goal that takes time, saving, and a lot of consideration.

For others, it’s as simple as adding another property to their portfolio or dipping into a savings account.

No two property investors are the same, and the investment journeys they go on can look very different depending on their price range and how they go about investing their money.

While it’s no secret that property investment is a lucrative way of earning a passive income, it does also come with a hefty price tag.

Newcomers to property investment may be wondering if they can afford to buy an investment property, as it can be difficult if you do not have a lot of funds available to you. If you are trying to invest by putting no money down, you will find the process close to impossible.

But do you have enough funds to purchase your first investment property? How much is considered a large amount of money in the world of property investment? Do you sometimes wonder ‘how much investment property can I afford?’.

If you are asking the question ‘can I afford an investment property?’, then this guide is for you. In it, we break down:

  • The costs of property investing you should expect
  • Average property prices for investment properties in the UK
  • How much money you may need to buy your first investment property

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What Should You Ask Yourself Before You Invest?

Beginners often wonder where they should get started with investing, but before you even look at any investment properties, there are several key questions you need to consider before asking ‘can I afford investment property?’.

Let’s break each of these questions down for you:

Why am I Investing in Property?

The first question you should be asking yourself is why you are choosing to invest in property over other forms of investment in the first place.

Answering this question can help you understand your investment goals, and when combined with your budget, this can steer the direction you want to invest in.

Do You Want to Increase Income?

Are you simply looking to use an investment property or portfolio to increase your monthly and yearly income?

Property investors earn passive income through two separate methods, rental income from tenants and capital appreciation on their property.

If you want to earn more money on a regular basis, you should base your investment around collecting more rent each month. Therefore, you should be looking at investment properties with high rental yields.

Are You Starting an Investment Portfolio?

Do you want to purchase an investment property as the first step towards establishing a lucrative investment portfolio?

Many property investors choose to own multiple properties to form an investment portfolio, with the aim of using the income from these properties as their main form of income. Eventually, these investors will want to treat their venture as more of a business.

If you have a smaller budget to invest with, you can undoubtedly build an investment portfolio over time. You will need to do so more gradually, however, rather than buying multiple properties at once.

Are You Saving For Retirement/A Financial Goal?

Investment properties are used by many investors as a form of financial security. By the time you retire, you may have earnt significant returns on investment properties if you pick ones that are going to be profitable.

You may be able to earn more through rental income than you can through a traditional pension scheme.

If this is the goal you are working towards, then having a combination of high rental yields and strong capital appreciation is a must in any property you invest in.

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Am I in a Good Financial Position?

This is when you need to be honest with yourself. Are you in a stable enough financial position to weather the risks that come with property investment?

Investing in property is a huge, long-term commitment, and you need to ensure you have more than just the cash to buy a property.

You should also be considering:

If You Have Any Debts?

You should pay off any significant debts before buying an investment property.

Focus on paying off debts with high interest levels such as credit cards, as these negatively affect your credit score and can make it harder to borrow a buy-to-let mortgage if that is how you choose to invest.

Other debts, such as mortgages, are not urgent priorities, but generally, ensuring you have as few unpaid debts as possible before you invest is a good idea.

If You Have a ‘Rainy-Day Fund?’

Having some kind of emergency fund is important for any investor. Squaring away some money in case things go wrong can help protect you from the risks of investing.

Everyone can relate to having to fork out a considerable sum of money for sudden events. If your car breaks down or your roof starts leaking, you want to be sure you can afford to fix it.

Owning an investment property can mean problems like these pile up, and although you are not living in the property, it is your job to resolve the problem as part of your landlord duties.

Having some money set aside for unexpected life events is highly recommended. You should consider saving between three and six months’ worth of living expenses to ensure you are secure if the worst happens with your investment.

How Will I Pay for My Investment?

There are multiple different ways of paying for an investment property, and each of them comes with its own advantages and disadvantages. Figuring out which one is right for you is an important choice.

Will I Pay Upfront with Cash?

Some lucky investors have enough disposable income to be able to purchase their chosen investment property outright.

This means you won’t need to worry about mortgage repayments or interest rates, and the property will be yours from the get-go.

However, this option is unrealistic for many investors, depending on the amount of cash they have available in their budget.

Will I Borrow a Buy-To-Let Mortgage?

One of the most popular ways to buy investment properties is to use a buy-to-let mortgage.

This allows investors with smaller budgets to consider properties that would otherwise be outside of their price range.

Buy-to-let mortgages differ from regular residential mortgages, as you will need to put a larger deposit down on the property. Your monthly repayments will only cover the accrued interest rather than the mortgage itself.

Then at the end of the mortgage’s term, you can either pay off the mortgage, sell the property or remortgage.

This option eats into your monthly income through the interest repayments, but it means you can spread the cost of investing out over time and purchase more expensive properties than you otherwise could.

Will I Pay With a Payment Plan?

Buying your property through a property investment company such as ourselves here at RWinvest means you may have the option to use a payment plan when investing.

Payment plans allow you to split the cost of the property you are purchasing into smaller chunks of cash.

This is a more manageable way of buying properties for those who do not have the entire price of the property right away, allowing you to spread the cost of investing out over time.

Keep in mind you will need to put down a deposit on the property and then pay follow-up instalments at agreed-upon dates down the line. This is usually when the property is complete if investing in off-plan properties.

Therefore you need to ensure you have enough cash for the follow-up payments by the agreed-upon dates.

A typical payment plan may look something like a deposit of 50% of the property price upon initial purchase and then a follow-up payment of the final 50% upon completion of the property.

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How Much Money Do I Have Avalible to Invest?

This may be the most important question you need to ask yourself, as you need to establish how much money to set aside to invest with and to establish an investment budget.

You may be surprised at how little you need to invest with, as you can invest in property with a range of budgets.

Can You Afford Your Deposit?

If you are planning on using a buy-to-let mortgage or a payment plan to purchase your investment property, you will need to consider how much you can afford for a deposit.

For a buy-to-let mortgage, you will need roughly 25% of the property’s price in order to put down a deposit. With payment plans, you may need a higher deposit of around 50%.

The actual amount you pay will, of course, depend on the overall price of the property.

For example, if you are buying a property that costs £100,000 with a BTL mortgage, you will likely need to have £25,000 upfront as a deposit.

Think about how much you have available for a down payment, and this will give you a better idea of what you can afford.

Can You Afford Property Taxes?

There are several different taxes you need to be aware of when investing in property. The two main ones you need to think about are:

  1. Stamp Duty Land Tax
  2. Rental Income Tax

Stamp Duty Land Tax is a tax you pay to the government when you buy property. If you are already a homeowner, there is an additional surcharge of 3% added to the stamp duty you pay on a property.

The government has just announced cuts to stamp duty, meaning you will likely pay less depending on the kind of property you are purchasing.

Rental income tax is a tax you must pay on any rental income you make from your property. How much tax you pay will depend on your income as well as your personal circumstances.

If you own an investment portfolio, then the profits from each property are added together to come up with a unified level of tax.

Can You Afford Maintenance Costs?

Owning an investment property means dealing with the maintenance costs that come with running it.

These could be anything from re-decorating between tenancies to paying for unexpected issues like plumbing problems.

This is where your ‘rainy-day fund’ could come into play, but you should also look to generate enough rental income to cover any unexpected maintenance costs that arise.

If you don’t want to manage the property yourself, you may want to consider hiring a property management company to handle the day-to-day operations of running a property.

Their job includes finding tenants, dealing with rent payments and resolving any tenant issues. This is highly beneficial for many investors, allowing them to get on with their day-to-day lives, but it will be an extra cost that you must factor into your budget.

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Will The Property Bring in Positive Cash Flow?

Most investors will generate enough rental income to cover the costs of any mortgage payments and unexpected costs while still having some cash left over.

This means they have a positive cash flow. In simple terms, having a positive cash flow is when the rental income is higher than the expenses and outgoings associated with the property.

You will want to make sure your property has a positive cash flow so you can earn significant returns from your investment.

How Much Rental Income Can You Expect?

You need to think about your expected rental earnings if you want to work out if your property will have a positive cash flow.

Depending on your investment strategy, it may be tricky to work this out.

If you use a property investment company such as RWinvest to purchase your investment, then you will normally have an assured rate of returns for a set period of time.

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

If you’re planning on buying your property more independently, you can use similar properties in the same area as yours to work out a rough estimate of how much income you can expect.

Tools such as Zoopla’s Area Guide are really useful when trying to work this out, as they provide average rental prices for different postcodes around the UK.

We have a handy rental income calculator you may want to use to help with this.

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

Not everyone can afford to invest in property right away. It is an expensive, long-term investment, and you may not have enough for your ideal property right now. Instead, try looking into these options, which could help you get a step further towards your goal of owning an investment property in the UK.

Real Estate Investment Trusts, commonly shortened to REITs, are similar to investing on the stock market. Rather than owning a property yourself, REITs allow you to invest in a company or organisation that owns or manages properties.

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

You likely won’t see returns as significant as you would with property, as you won’t get the rental income as a cash flow. But REITs are still worth your while if you want to invest in property without spending a lot of money.

You can always just keep saving money until you have a sizeable budget if you decide that you don’t have enough of a budget for your ideal investment property right now.

It’s not worth spending so much money on an investment property if it’s not right for you, after all. Just because it may meet the budget you’ve got right now, it doesn’t mean the property will bring you the returns you need.

Waiting a little longer until you have the money available can be the best move sometimes, even if it does require a little patience.

If you have a lot of equity against a home you already own, you may decide to borrow against your home and extend your existing mortgage to release the cash to be spent elsewhere.

What will decide if this is an option for you is who your mortgage provider is and the criteria they have for such an action. You will need to meet their specific criteria in order to do this.

You need to weigh up the pros and cons of this before you take action. 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.

You could choose to borrow the money you need from friends or family and pay them back at a later date – almost like a more informal buy-to-let mortgage.

The biggest risk of this option is not being able to pay back who you borrowed the money from if your property does not bring in the expected rental income, which could damage relationships you care about. Do you really want to risk arguments with friends or family over your investment property?

Another option that could be a possibility for you is to invest with a partner.

By combining funds with someone else, you would both become co-owners of the investment property, meaning you would not have sole ownership.

We discuss the pros and cons of this option more in our helpful blog post. Click the link below to read.

Follow the link to 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 and learn more about what to expect from owning an investment property.

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.

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How Much Money 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 Buy Property for Airbnb

How to Invest £50k

How to Invest £100k

How to Invest £200k

How to Invest £500k

How to Invest £1 million

John Brady

John Brady

John is a property writer here at RWinvest. With a close eye on property market news and updates, John writes detailed and informative articles on a range of topics that are helpful for anybody looking to invest in UK property.

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