Investing for your future with buy to let property
The Top 10 signs of good rental property investment.
Are you are thinking of purchasing a buy-to-let property? If so, finding the right one is your key to success! Before you commit to a property purchase, here are the pointers you need to consider:
1 Buying property at the best price?
Achieving the best purchase price will ultimately yield better financial benefits during your term as a landlord. Make sure you are paying the right price!
Comparing purchase prices of properties in the surrounding area will be of good use to you. By researching past sales of a particular property and finding out what it has been sold for previously will give you a better idea if the asking price is fair, and most importantly, whether you are willing to pay it.
If your research shows that the asking price is over-inflated, it is definitely worth negotiating. Depending on how motivated the vendor is to make a sale can clinch the deal, hopefully in your favour, and ultimately the final price that is agreed.
Remember... If you can not secure the property at the right price for you, keep your options open – look at other properties.
2 Hidden costs... Is this property a money-pit?
There are always additional costs to the purchase price when buying a property, such as survey costs, solicitor fees, mortgage product fees and administrative costs.
Do your research before signing on the dotted line. Do not let hidden costs turn your investment property into a money-pit.
Be aware... Certain dwellings will have higher hidden costs than others: annual management fees (if the property is in a block of flats, complex or development); and Stamp Duty that you will have to pay on purchase. For more information on Stamp Duty visit: http://www.hmrc.gov.uk/sdlt/index.htm
3 Will the rental return cover the property’s outgoings?
It is vital that your monthly rental return will cover the outgoings – including the monthly mortgage payment (that may be on a variable rate) and landlord insurance. Calculate the monthly rental figure, after researching what similar properties are renting for in the locality.
If the rental return arithmetic does not add up, then your annual profits will not either. So, think again, is this investment right for you?
Top tip... A landlord should aim to achieve a 10 per cent yield on their investment.
4 What is the scope for rental property in my search area?
In order to make an informed decision on investment property, it is essential to know what type of accommodation is currently ‘in demand’ within the area you are looking. It is equally beneficial to be aware of what is ‘not in demand’.
Firstly, you could browse property-search websites and check out what rental accommodation the letting agents have on offer in the local area. Keeping an eye on the online activity and asking the advice of an agent (like L&B - Property Management) will assist you in making an informed choice about the type of property purchase – one that is going to give you the best return.
Before you buy any property, gauge what the level of demand would be in the area for a property of that type and size. Buying something accurately targeted to the optimum rental market is of most importance.
5 Is the property in the best possible area?
As Kirstie and Phil say, LOCATION, LOCATION, LOCATION, is key when investing in a buy-to-let property! It can make a big difference to your rental return.
It is always worth choosing a property in a safe location that boasts good amenities within a two mile radius – such as schools, restaurants, local shops and good transport links. If the location is desirable, you are more likely to gain a high demand for your property, which allows you to command a higher price for rent.
Buy in an area that is predominantly tailored to the rental market rather than in an area that suits purchasing tastes.
Always think... Who is most likely to rent the property? Make your purchase with the right tenant group in mind and in relation to the property’s location and proximity to local amenities.
6 Is the property’s size best suited to the local rental market?
It is advisable not buy a large house in an area where demand for smaller properties dominates (and vice versa). Looking into what type of properties are up for rent in the local area and how long it takes for them to rent will greatly assist your decision to invest. Do your homework, get as much information as you can.
Financially speaking, smaller property is going to be cheaper to buy but will command a lower rental income. But, buying a expansive and expensive house, ultimately, will achieve a higher rent. But be warned, on a larger more expensive property, the monthly out goings will be considerably higher too!
Just think... How much it is going to cost you if the property is empty for a period of time – a rental void on a more expensive property will have a larger impact on your finances, than having a smaller property left vacant between tenancies.
7 Is the property sellable for profit in the future?
Do not buy an investment property without having a plan for its future. Envisage how long you are going to hold on to the property, and whether or not it is sellable in the future and if there is scope for a raise in marketable value.
It is important to buy the best property for you in the right area, but it is also crucial to buy at the correct price! Always look for property that will be easy to sell on.
The rise in capital is ‘at the end of the day’ where the money is. You do not want to buy a property for £80,000 – keep it for a number of years and then sell the same as what you paid. That would be ‘false economy’. A better resale value is where the real part of the property’s investment lies.
Top tip... If you plan to sell an investment property on in the future, never buy a property that has already reached its ceiling price for the area. This would make for a poor investment.
8 Will the property be costly to maintain?
As an investor, you must weigh up the condition of the property with the costs of remedial renovations and on-going maintenance.
It is true that a ‘renovation project’ property can often be bought at a considerably lower price of a property that has already been modernised. However, an investor needs to factor in the cost of necessary renovations, plus the amount of rental income lost during the renovation time frame.
9 Is the property leaning toward a false economy?
Do not buy a property, just because it is cheap. Purchasing a property in need of renovation means that you must realise that it will not give you a financial return from the outset.
It is a recommendation that renovating property is for the more experienced landlord who knows trusted contractors in place and has tenants waiting to move straight in upon completion.
Always check the age and condition of the property before you buy (and look at similar properties nearby). Visit in daylight and inspect externally – the roof, gutters, downpipes and windows. Internally – check the heating system, plus make a point water leaks. Look for evidence of damp and condensation too.
Find out if there are any maintenance obligations on the owner as a condition of sale – this could ease the burden of your renovation budget, or be good grounds for a negotiation of a lower purchase price.
If there are too many things to put right, you need to weigh up the pros and cons before committing to the purchase. If it is too daunting a task, it may be time to consider other properties that may require less work to get it ready for tenants.
10 Will there be scope for me to improve my investment?
Before investing, it is worth thinking about whether there will be any scope for building on your investment in the future. Some properties lend themselves to ‘home improvements’, while others do not. Adding improvements at a later date may add value for your tenants and could increase the property’s resale value too.
Find out what planning laws apply in the area and check that there are no restrictions on work that can be carried out on the property (listed buildings and conservation areas will have limitations on the changes you can make to a property).
Weigh up the pros and cons of additional improvements. You need to stay focussed on what you want to achieve with the property in the short-term plus any improvements that will make for the best return on your investment when the time is right to sell it on.
Ask the experts... Should I get a second opinion?
If you are in any doubt about the quality of a property investment that you are thinking about buying, it is definitely worth getting a second opinion from someone with a knowledge on such matters.
Get a FREE rental valuation... Contact L&B – Property Management to ask about, as a landlord, how much you could expect in monthly rental return on a particular property, and how long it could take to let out.
Our property management rates are very competitive. Please check out our Property Management service page for more information or call us on 0800 083 8945. Our letting advisors will be able to give better idea of rental returns in the area. We are happy to discuss your requirements for Property Management services.