Whether you have experience in property or not, chances are you already own your own home. But buying a property with the intention of letting is very different to buying for yourself. You need to think about rental yield, finding good tenants for the property, there are many things to consider when making your decision. I have put together some pointers which I hope you will find useful. Let's start with one of the most important.......
Investing in a buy-to-let property requires you to put down a significant deposit and unless you are in the financial position to go down a different route, it will also require you to take out a mortgage. So create a cost assessment and find out how much you can truly afford. Remember that buy-to-let mortgages are more expensive and they normally require a minimum deposit of 25%. Don't forget to factor in arrangement fees as well. Then calculate the rent that you're planning on earning from the property, financial institutions normally want this to cover at least 125% of your mortgage payments but even up to 145% at times. Remember to also set money aside for maintenance and periods of time when the property might be empty and you will have to make those mortgage payments yourself.
What makes a good investment?
This depends on your own personal reasons. If your focused on long term growth, or improving a property to sell in future, you'll need to buy in an area with growth potential. Chances are you want a passive stream of income while you own the property so then you will need to choose a property with the highest potential rental yield. You need to assess your goals and then each property you are viewing and decide how well they correlate.
Rental yield is your return, or how much you earn from a property investment. It is calculated as a percentage of the value of your property. Generally, you want to have a rental yield of 5%. This isn't always achievable due to the area and it's rental costs, there are however investment hotspots which have shown a 7% + rental yield. Here's a quick example of rental yield - Rental income minus expenses of £10,000 per year on a property that cost you £200,000 gives you a 5% yield. If you want to calculate your rental yield, feel free to use our rental yield calculator .
Consider who you want to rent to, families, students or young professionals? Think from their perspective and imagine what their needs and wants would be. Families might want a garden, students might want to be close to entertainment areas and young professionals might want a very modern space. Whoever you rent to, remember to follow all the legal requirements such as placing the tenants' deposit in a deposit protection scheme. There are various legal requirements so make sure you know what they all are.
Where to start
Decide on a few areas where you might want to buy. You might want to stay closer to home since you know the area well, or if your going to have an agent manage for you then you can look further away in areas that might be more lucrative. Look for particular roads to buy property on that are near the types of amenities that would attract your ideal tenant like roads near a very good school if you're attracting families. Also look at general areas that have a high average price, are up and coming or that other areas are expanding into.
Type of property
The right property will most likely be different from the property you would choose for yourself. You generally want a property with a broad appeal so that you can let quickly. Do you want to buy a house or flat? What type of tenant is attracted to either of these? Do you want a new property or old? Consider that old properties require much more maintenance, they will have much more character but may be harder to let. Layout is important. Does it have large communal spaces that families and students could make use of? Or are there many seperate rooms that might deter families?
There are many things to consider when purchasing a buy-to-let property and as always research and diligence always pay off. I hope you found the article useful and if you have any questions or need advice, feel free to get in touch .