Property

In the past, investing in property apart from your own home wasn't easy. Mortgage lenders charged commercial rates of interest and imposed additional surcharges on mortgages for buy-to-let properties. As a result, many people earning an average income were excluded from this market.

Buy- to-let

However, this all changed after the Association of Residential Letting Agents (ARLA) introduced a new type of mortgage that not only takes into consideration your income but also the earning potential (rental income) of the property to be let. This means that many more people can now afford to take out an additional mortgage on an investment property. Indeed, many people in the UK have chosen property investment as a way to prepare for their retirement, preferring to go down this route instead of contributing to a pension.

Not only has this been good news for potential private landlords but it's also good news for the private rental market which in Britain lags behind many other countries.

But investing in property doesn't come without its risks.  After all, to make a decent profit, you will be relying on a buoyant property market – with rising house prices and increasing tenant demand.

Unfortunately, thanks to the credit crunch, house prices have taken a bit of a tumble and have yet to show signs of improving significantly.

What's more, the number of buy-to-let mortgages on the market has reduced dramatically. Lenders simply haven't had the funding and have also tightened their lending criteria, meaning that buy-to-let investors have faced a less competitive mortgage market.

Yet despite this, the buy-to-let market is still putting in a solid performance. First-time buyers continue to have difficulties getting on the property ladder and this, combined with a shortage of housing, means that demand for rental properties is continuing to rise and demand always pushes up prices. Furthermore, a number of lenders are now re-entering the buy-to-let market and competition is increasing.

Some investors are even taking advantage of the lower house prices to expand their portfolios.

But those interested in investing in property need to do their homework and choose a property carefully. Just like any other commercial business, investors need to learn as much as possible about the letting business and check out the local property markets and competition before taking the plunge. If you buy an unsuitable property in an unsuitable location, you may find it hard to rent out. .

Property investors will also need patience – house prices won't soar overnight, so those who are planning to invest will need to wait it out once they’ve bought their property until prices do finally pick up. But when they do, investors can potentially make some great returns - benefiting from a rise in the market value of the property as well as an increase in rental income.

Buy-to-sell

Some investors prefer to buy a property to refurbish and sell on with the aim of making a profit, rather than become a landlord and rent out the property to tenants. In the past, this has proved very profitable; however, in the current market, profits are not quite so fruitful.

So if you are thinking of going down this route, research carefully and find out where you're most likely to earn a decent profit. Keep potential buyers' needs in mind when making improvements and don't overspend. You need to budget carefully and stick to this budget as much as possible. After all, you are in this to make a profit.

For example, don't improve areas of the house that don't need improving. Don't overspend on fixtures and fittings and keep the decoration simple and neutral. However, if you're buying a property that needs a lot of work done to it, you should calculate the additional funds carefully. Builders can give you quotes but you will need to cost fixtures and fittings yourself as you want the finish to be a high standard. Potential buyers will be put off by shoddy work and it may affect the selling price – and your profit margin.

Always allow an extra 10% – 20% on top of your budget for contingencies. It's impossible to foresee all the snags you could come up against while refurbishing a property and you may not sell it once it's finished as fast as you'd like meaning you will have to keep up mortgage payments longer than anticipated. All of which will eat into your profit.