Buy to Let Checklist
Considering investing in a rental property? Here are some tips from Belvoir! one of the leading letting agents in Bury
There is currently very strong demand for rental properties in and around Bury and sometimes it seems that almost any property would be a good rental investment. But remember, your ownership of a rental property is likely to be on a medium to long term basis and as such it will need to consistently deliver over this period. During this time your property may largely stay the same but the UK economy, the local economy and property market are likely to change, considerably.
Follow our key points to ensure your property will rent all year round and will continue to be a sought after rental property over the long term.
1. Start with the end in mind.
Why are you investing? For how long will you invest? What do you want to achieve?
Are you looking to build a property portfolio that is based on the value of the property increasing? (Capital growth) With many pensions and investment markets underperforming people are taking things into their own hands and are creating and building their own pension through property.
Are you looking for a monthly income from property?(Yield) Whilst it’s always important to get your figures right, in order to make a worthwhile monthly profit you need to ensure that you accurately budget costs and income.
Ideally you will be looking to achieve capital growth and a monthly income. This should be possible; however with a volatile housing market a long term approach may be required.
2. The right rental property
Research your market – the area, the people you want to rent to, the available property, the benefits and the risks. Choose your preferred tenant type. Students? Young professionals? Families?
Location, location, location. BUT you are not looking to live in this property so forget your preferred living location. Look from your target tenants’ perspective. What area will attract your tenants and why to your property?
Find the right property that will appeal to them – houses, flats, older properties, newer builds? Students may not need anything particularly stylish but a young professional probably will.
Properties that have basic amenities close by and are also close to good transport links often appeal to a number of tenant types. If you are looking to rent to families then access to local schools and possibly a good garden are important.
Look for local facilities that attract your target tenants. Universities are an obvious choice but that doesn’t mean you have to get involved in student lettings. Universities, large employers and large hospitals all attract renters. Doctors, lecturers and employees may be relocating for a set period of time and so are happy to rent. Also, these renters create demand for different property types, meaning there should be an investment opportunity that fits your budget.
3. Property choice and rental yield.
Compare property prices and rental Income in your investment location.
Before you buy a property check the letting potential with an independent lettings specialist, one that does not offer property sales so that there is no conflict of interest. A specialist letting agent will provide information on the best rental properties whereas a lettings and sales agent will likely only provide information on the properties that they have for sale.
Although the ‘cost of purchase’ and ‘rental income’ is a good starting point for helping to decide on your shortlisted properties there is a more encompassing measurement, yield.
Yield is expressed as a percentage and is often used to measure the return on investment for different properties. It’s also used by people who want your investment money and they use it to demonstrate that their investment ‘opportunity’ is better than any others.
My simple advice here is do not accept anyone’s yield figure until you have checked it yourself. Property investment needs to work for you, so if yields are being mentioned then ensure you get a full breakdown of how the yield is calculated, and then perform your own calculation.
Here’s a basic yield calculation –
Cost of property £120,000
Rental income £900 per month, £10,800 per annum
Gross Yield = Annual rental income divided by Property costs (multiplied by 100 to get a percentage)
£10,800 / £120,000 * 100 = 9%... Not Bad! Except that your actual costs will include far more than just the property cost.
What about insurance, void periods, maintenance, set up costs, letting costs etc. All of these have an impact on the yield and that is why you should never trust a yield calculation unless you have checked it yourself, you just don’t know what has been left out of the calculation or what assumptions have been made.
For completeness the basic calculation above is generally known as gross yield, it’s simply the property costs against the rental income. It does have some value for comparison purposes but it shouldn’t be used to estimate your income from an investment.
The more comprehensive yield calculation will give you the net yield and this is a far more accurate basis from which to estimate your income from a property.
4. Property checks, Finance and Management
Study the condition of any property you are interested in – from roof, guttering and windows on the outside to condensation, leaks and electrical wiring on the inside. Be conscious of fire risks.- Check whether extensions or conversions have met planning permission or building regulations.
Don’t accept the first mortgage offer you get. Shop around. Gather information and compare.
Get the right insurance cover – and that can include insuring yourself against tenants who fail to pay rent.
If you’re going to manage the let yourself, be prepared to sacrifice your evenings and weekends! If this is likely to be more of a drain than you are prepared for, seek out a professional, fully accredited lettings agent who, for a modest fee, will look after your property, your interests and your tenants on your behalf.
As well as being completely up to date on legal, legislative and property industry issues, a local agent such as Belvoir will have expert knowledge of the best rates from local best of bury electricians, plumbers and so on, which in itself, can be worth a weight in gold. Belvoir local offices do not make any charge for pre-purchase advice, property visits or rental valuations
Future articles will look at further steps to property investing including the rental process and managing the property and tenants.
If you have any questions that you need a straight answer to, contact Chris Roberts Owner of Belvoir Letting Agents Bury. Belvoir is one of the leading Letting agents in Bury offering advice and guidance to Landlords, buy to let investors and tenants.