In this series of articles, Gwen Willaims, Property Manager at Belvoir Bedford advises potential...
In this series of articles, Gwen Willaims, Property Manager at Belvoir Bedford advises potential landlords about the types of investment property that can be bought to house tenants. One would think that any house could be bought with the hope of making some money through letting it out. However, some properties let better than others and that means making more money each year. The main aim is to have the house occupied at all times, so avoiding gaps in the tenancy, usually called voids.
Types of Property suitable for Renting Out
Big isn’t always beautiful in the rental market. A large 4 bed detached house, worth £250,000 could make up to £1000 per calendar month in some areas, but it will also have significant mortgage payments each month.
"The higher the rent the smaller the market "
Not as many people can afford such a rent, so tenants could be difficult to find and there may be voids each year to cater for.
A smaller 2 or 3 bed town house, is at the starter end of the market and is in much demand from many different types of tenant. In the Bedford area rents for this type of property will normally be between £600 and £750.
You are much more likely to be able to rent the smaller property and are less likely to have voids.
In addition, your rent may cover your mortgage repayments.
Rule 1 – Analyse the rental against the capital cost. Generally, you are better with a few smaller properties than one large one.
A good property manager will be able to advise on the local rental market and will be able to offer sound advice on the types of property that are most suitable for rental. The house that you like the look of is not necessarily one that will rent well. Check out our Best Buy to Let Deals on this very blog for more information.
Rule 2 – Take advice from a professional property manager unless you really know the local market.
It is better to buy a newer or a recently refurbished property requiring little annual maintenance than an older, less well maintained property at a lower price. You want to see the maximum money coming in, not hefty bills for maintenance every month.
Rule 3 – Don’t buy a property that needs frequent, expensive maintenance.
Which Sector of the Rental Market Should I Invest In?
There are many different tenants out there wanting property.
- Some are DSS, requiring basic facilities and often needing help with the rent through housing benefit.
- Young couples setting up home for the first time and those moving into a new area who are unsure of where they want to purchase a house, form another group.
- People whose personal circumstances have changed often rent until they stabilise their lives.
- Businessmen moving into a new area either long or short term will also need housing
- If there is a local University or College in your town then students will always need housing whilst they complete their studies.
Your agent will be able to help you to decide if you wish to purchase property for a more specialised area such as Student lets or whether you should go for a more generalised area of the rental market.
Buying to Let
Although it has seen something of a boom in recent years, buying property to let has always been potentially rewarding as an investment.
This becomes even more popular when interest rates are relatively low and access to ‘buy-to-let’ mortgages becomes easier.
Structuring Your Investment
This depends on what you want from your investment. You may require a monthly income as well as capital growth or it could be that you are planning a long term investment i.e. as part of a pension plan.
If you require a longer term investment from your property it may be more advantageous to pay a deposit and borrow the rest with a buy to let mortgage, using the remaining capital to purchase more properties on the same basis. The mortgages would be paid by the rental income the properties received and in time you would then have a number of properties to provide your retirement fund instead of only one. This is called “gearing up” and a financial advisor will be able to explain it in more detail for you.
There are, of course, advantages and disadvantages of buying a property to rent out and a good agent will always point these out to you before you buy. The advantages include:
There is a rising demand for good rental properties due partly to the increasing flexibility of the workforce and a change in social attitudes to renting.
Providing you buy a suitable property and after taking into account tax deductible expenses you can usually make a healthy profit.
If house prices rise, you have an appreciating asset.
Rental incomes can be increased in line with inflation.
The drawbacks can include:
- The value of houses can go down as well as up.
- A deposit is usually required if using a Buy to Let mortgage.
- The cost of the mortgage must be covered if the property is left without a tenant.
In short-term tenancies the Landlord is obliged to maintain the structure and exterior of the property no matter how costly this may be.
Buying to let can be a very rewarding investment, providing the correct properties are purchased and can be rented out with few void periods.
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