We get a lot of clients coming in here at Cox & Co who’ve acquired a large lump sum that they don’t really know what to do with. They might have been diligently saving for years or they’ve come to some money through family inheritance.
Whichever the case might be, this is an interesting situation with two distinctive ways to proceed when it comes to residential property investment. If you find yourself in this position, you could either buy one property and take out very minimal, if any, mortgage, or buy a number of properties and take out mortgages to cover the costs. Both of these options are valid and come with their own pros and cons.
Today, we’ll take a look at both of these options and go over what the best kind of properties are for the kind of investment you want to make. We’ll also go over some great neighbourhoods to invest in both in Edinburgh and Glasgow and discuss the pros and cons of buying property in cash.
Buying one property without a mortgage
In general, it’s better to buy multiple properties in order to spread the risk that is always associated with any type of investment. However, this is not the best option for everyone across the board and sometimes, investing in a single property is the superior choice. What’s right for you basically depends on what you want most out of your investment.
Many of our older clients especially want to acquire buy-to-let property in order to bring in some rental income that’ll allow them to retire completely. They are also conscious that they would like to leave mortgage-free property to younger family members in their will.
In a situation like this, investing in a single property and potentially even buying it with cash is the right option: your rental income will be greater from the get-go and you won’t have to worry about making mortgage payments or leaving those to your children.
Best property for a single property investment
If investing in a single property is the right option for you, here’s what you need to know when looking for the perfect flat or house for your investment. Buying a larger property, if that’s possible, will naturally guarantee larger rental yields. Investing in an established and popular neighbourhood means your investment is less risky, but it’ll usually cost you more to acquire property in an area like this.
We recommend that you invest in a property market you know well unless you’re enlisting the help of an experienced property investment manager: your hometown is usually a good shout as you’ll likely have a good understanding of the different neighbourhoods in the area. For property investment in Edinburgh, we recommend buying property in areas with a high rental yield: the EH8 and EH11 postcodes top the charts for highest yields not only in the context of Edinburgh but also nationwide.
The EH8 postcode has an average rental yield of 10.6% and encompasses neighbourhoods around Arthur’s Seat and the University of Edinburgh: think Southside, Newington, Old Town and Meadowbank. The EH11 area has an average rental yield of 8% and consist of areas like Dalry, Gorgie, Saughton and Sighthill.
For Glasgow property investment, popular neighbourhoods with high rental yields include Garnethill and Yorkhill which have an average rental yield of 7.2% and 8.2% respectively. Neighbourhoods in the West End are highly popular and make for safer investments due to flats in these areas being in high demand. Hillhead and Partick would both be good options in addition to Yorkhill.
Taking out mortgages & acquiring multiple properties
The other option you have is spreading your investment across multiple properties and taking out mortgages through strategic lending to cover the costs. This is a good plan of action since the smaller the amount you initially invest is, the greater return on investment you start generating with your properties right away. So if you are willing and able to play the long game, spreading your lump sum to buy a number of flats is a good idea.
The good thing about this strategy is that it spreads the risk of your investment. While you’ll have mortgage repayments to make, having multiple properties means multiple tenants and greater rental income to cover these costs.
However, more tenants and more properties could potentially mean more maintenance and remedial costs. That’s why it makes sense to have your properties professionally managed to make sure that any issues are dealt with quickly, efficiently and cost-effectively by experienced letting agents.
Best property for building an investment portfolio
If you’re spreading your investment across multiple flats, buying a number of one or two bedroom flats is a good way to spread your budget further. Investing areas popular with young professionals helps ensure the best possible rental income.
In the Edinburgh property market, young professionals love areas like the Leith Walk, Meadowbank, Dalry and Gorgie. These areas are located near the city centre with great public transport links and are affordable, yet have more and more trendy shops, cafés and restaurants popping up regularly.
In Glasgow, Finnieston, Shawlands and Thornwood are solid options. Finnieston is a very trendy area, with lots of creative businesses and hip eateries calling the area home. Shawlands is in Southside and has some great nightlife and ample green spaces at Pollok Country Park and Queen’s Park just a stone’s throw away.
Thornwood has been an “up and coming” neighbourhood for a good while now and offers easy access to the cultural hub of the West End while being home to some lovely restaurants and bars of its own as well.
Buying a house with cash vs. with a mortgage
For sellers, cash buyers offer an interesting opportunity: the sale is likely to be processed much faster than people buying a property with the help of a mortgage. You’re effectively cutting out the middleman that is the bank and ensuring that the sale will go through because there’s no waiting for a mortgage application to go through, making the transaction between you and the seller quick and stress-free.
There’s also no complicated property chain involved as you’re not waiting for funds to free up from the sale of your old home to secure the property you want to buy. This is another factor that makes a cash buyer an attractive candidate for sellers looking for a quick and fuss-free transaction.
On the other hand, cash buyers are likely to not be able to make as impressive an offer as someone who is applying for a mortgage. So whether making an offer in cash will work to your advantage depends on what the seller needs most out of the transaction.
If they need the sale to go through quickly in order to buy a new home, they’ll likely appreciate the ease a cash transaction offers. If, on the other hand, you’re only able to make an offer below the asking price and the seller knows their property is desirable and they’re in no rush, they might not accept a cash offer if there’s a higher competing offer from someone applying for a mortgage.
Another downside of buying a house outright that you need to keep in mind is that you’ll lose a good deal of your liquid assets in the purchase, so make sure you still have some savings left for emergencies if you do decide on buying a house with cash.
Should you spread your investment across a wide geographical area?
What’s right for you depends on how well you know the property market in the area you’re interested in and whether you’re enlisting the help of a property investment consultant like Cox & Co. Starting small and staying close to home is a good idea for people new to property investment who are keen to go it alone.
Spreading the risk of your investment across a larger geographical area is a good idea if you want to play it safe and buy property in a number of popular neighbourhoods or even different cities. If this sounds like something you’d like to do, you should consider seeking the opinion of an experienced property investment manager, especially if you’re looking to invest in a city you don’t know very well.
Investing in popular neighbourhoods is obviously the safest option, but should these areas fall into the category of up and coming or established neighbourhoods? This goes back to how soon you want to see a good return on investment – properties in “up and coming” neighbourhoods could rise in value over a number of years, but your rental income might not be as big as you’d hope for a while.
What a property investment manager can do for you
A property investment manager can recommend you the best types of property for your needs. Here at Cox & Co, our property investment service truly is a full service: we can find you the best flats and houses and mortgage deals for you and act as your estate agent in property sales. Not only that, but we also offer a property management service, acting as the middle man between you and your tenants.
At the start of our working relationship, we’ll get to know you and your financial goals intimately before recommending the best property investment opportunities for you. Our ten years of experience working with would-be property investors just like you make us the ideal partner for your property investment journey.
Interested in buying property in Edinburgh? Read our comprehensive guide to Edinburgh property investment here. For the Glasgow edition, read our article on the best areas to buy property in Glasgow here. To speak with our property investment experts, follow the link below to fill our contact form.