As a property sourcing agent and a letting agent, we get asked questions all the time about what are the things you should consider when buying a property to rent out. I have tried to cover the key things I think are important in this blog. Here are my top 10 tips!
1) Location, Location – You hear this all the time in the property industry but it is so true.
At times when the market is buoyant don’t settle for 2nd best in terms of the location of a property. I am not suggesting you only look for the best streets or areas but you need to make sure that the location of the property is right for you and is reflected in the price you pay. A house next to a pub or a take away might put off potential tenants and when the market is tougher it will always make the place more difficult to sell.
At times when the market is buoyant don’t settle for 2nd best in terms of the location of a property. I am not suggesting you only look for the best streets or areas but you need to make sure that the location of the property is right for you and is reflected in the price you pay. A house next to a pub or a take away might put off potential tenants and when the market is tougher it will always make the place more difficult to sell.
2) Tenants – this is about knowing your ‘customer’ or in this case your prospective tenants. What type of property is there a shortage of in the area, what is popular? You want to be able to let your property quickly and easily and have a choice of tenant to get the right ones. Most properties will let in time but also be aware that some investment strategies won’t work in every area. For example, if you are looking at turning a property into an HMO, know the local market and the tenants looking for shared accommodation to make sure it is appropriate to your chosen client base.
3) Actual Cost – make sure you know your costs as this can have a dramatic effect on your return on investment. Factor in broker costs, mortgage or borrowing costs, solicitor’s fees, additional stamp duty for 2nd homes, buildings insurance, letting agent’s fees and maintenance fees on leasehold properties. These soon mount up so make sure the price you are paying makes it worthwhile once you have paid all of these. The key is buy at the right price and don’t rely on the market rising to recoup your costs. Also think about the tax implications of your investment and any licences you might need.
| 4) Yield – work out the yield on the property based upon the rent you are confident about getting. Don’t rely on what the agent selling the property tells you as they want their sales commission. Do your own research and be confident about the rental value of your property. The basic calculation is to work out the annual rent received as a percentage of the purchase price. For example, a property delivering £10,000 worth of rent that costs £200,000 has a 5% yield. This should be taken with caution as this is the gross yield and does not include all your purchase and ongoing costs. Also be aware that your deposit value will change as the market fluctuates whereas the amount you owe on the mortgage will not be affected in the same way. |   |
5) Financing – shop around for the best mortgage deal. Find a good broker who knows the BTL market well. Make sure you are able to provide all the financial information required and which deals work for you. Think about whether you take an interest only mortgage or repayment. Most investors use interest only but this is not a one size fits all and a good broker will be able to advise what is the best for you and your circumstances. If you are looking to buy at auction make sure you have the funds ready to complete quickly. Possibly consider joint venture opportunities with other investors as an option?
| 6) Resale potential – with our clients this is something we always consider. If your house is the worst one on the street or there is something that might put buyers off if the market is stagnant the property won’t sell easily. It’s easy to consider the here and now but always be mindful that if you do need to sell in the future that you’ve given yourself the best chance of doing so! | 7) Buy right – this refers back to the points raised above but most importantly you should not rely on the market to rise to maintain your investment. You must buy at the right price. With all the fees to pay as soon as you complete you are behind if you pay too much for a property. Negotiate well and walk away if the deal doesn’t stack up or you will regret it later. |
8) Work required short and long term – be aware of any work that needs to be done to get the house ready to let and make sure this is planned in, completed quickly and budgeted for. Plan for any major expenses required at the property for the future and timescales ie, external redecoration, roof, boiler replacement.
9) Ease to service – think about how hands on you want to be with the property. If you are not local then do you have contractors to call on for maintenance issues? Do you want to be the first point of call for your tenants? Will you need to employ a letting agent? Research fees and service provided and get recommendations. A good agent will look after and nurture the relationship with the tenants which is the key to a successful let.
10) Have a Plan – whether this a first investment purchase or one of many have a plan or an exit strategy in mind. What are your plans for the property? Are you going to rent it out and sell it in 10 years? Are you looking to pay off the mortgage? Are you hoping to re-mortgage and draw down capital to re-invest or spend? I think it is important to have a plan then you can make sure the mortgage deal and any insurances are the correct ones and you can keep a track on the market and rental prices to achieve that plan.
I hope this gives a flavour of the key points when purchasing an investment property. If you would like any further information then please give me a call on 01304 825153 or email [email protected].
I hope this gives a flavour of the key points when purchasing an investment property. If you would like any further information then please give me a call on 01304 825153 or email [email protected].
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