With some experts predicting a fall in house prices in some areas of
the UK is property investment still providing a safe haven for your
money? You decide:

Many thousands of people who placed their faith in buying residential
property as an investment vehicle, have seen that faith richly
rewarded as the growth of the buy-to-let sector has helped fuel an
already buoyant property market. But with some areas of the country
expected to see a downturn in house prices does this mean that the
buy-to-let bubble may have burst?

Many experts, including mortgage brokers Moneygate, have predicted
that this sector of the market was well placed to withstand
fluctuations in house prices as many people will decide to keep
renting until they see the extent of any property market slump.

Even with this in mind buy-to-let is by no means guaranteed to give
you a return on your money and many personal finance advisers would
suggest that putting all of your investment eggs into one bricks and
mortar basket is a risky strategy to take.

So, if you are considering investing in property then there are a few
basic pros and cons that you should be aware of:

Where buy-to-let scores

Historically, investing in property has proven to give good long term
returns. Rental yields have typically shown a return of around 5% of a
property?s value.

Potential returns can be maximised by using a mortgage to buy the
property. An investor who purchases a property outright for £200,000
and later sells for £240,000 will have made a 20% return on his
initial £200,000 investment. However, if the same investor part funds
his purchase with a £160,000 mortgage then the same £40,000 profit
means he will almost double his initial £40,000 investment once
mortgage fees have been deducted.

Current market conditions still favour the buy-to-let sector, despite
fears of credit crunch and house prices falling, as rising levels if
immigration and large increases in the number of people unable to
afford to buy their first home have led to a significant demand for
rental properties. With more and more people deciding to stay in
rental accommodation then this demand will help to push rental returns
up

Possible pitfalls

The costs associated with buying a buy-to-let property are generally
far higher than those of other investments. Surveyors?, solicitors?
and mortgage fees will almost certainly add up to thousands of pounds.
There are also many legal and safety requirements to consider,
maintenance and upkeep of the building and possible problems with
tenants.

If you?re not prepared to manage the property yourself then you will
need to pay a management agent to do it for you. For a fee, typically
around 10% (plus VAT), agents will find you a tenant, check their
references, change utilities etc and for a further 5% (plus VAT) they
will look after all ongoing maintenance and problems with the
property. While this may seem like value for money the fees are
payable on the gross monthly income from the property not your profit,
all of which reduces rental yield.

With any ?void? periods between tenants possibly wiping out any
returns from your property for that year it is vital that careful
research is carried out to find out what sort of properties are
lettable, and at what price, before you buy.

Before offering a buy-to-let mortgage, many lenders will need to see
proof that the rental return will cover at least 125% of the mortgage
payments. What?s more disposing of a bad buy-to-let investment will be
much more difficult, and take far longer, than selling shares or other
investments.

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