Top Tips for Buy-to-Let Beginners
Like all investments, investing in property comes with its risks, so it is imperative to research thoroughly, work out the maths and always budget for possible extra costs. Property investment is also quite a holistic process; your budget can influence where you can afford to invest and the location can influence the type of property you buy and who you let to.
Make sure you’ve considered at least these things before you become a landlord:
Cash vs. Mortgage purchase
Even if you are lucky enough to make a cash purchase, it is still recommended that you consider buying using an interest-only mortgage as could actually generate you better returns. When purchasing on a mortgage you only pay back the interest on the loan instead of the capital the house is worth. A recent survey by the Wriglesworth Consultancy revealed that between 1996 and 2014 buy to let properties bought with an interest only mortgage returned 16.3% per year combined to the annual return of 9.3% for those with cash purchases.
Define your investment aims
This all depends on your current circumstances. A property that provides good, steady income from rental yields will suit those who are using property to support their income. For others, a long term capital growth can be more appropriate as they may have enough income but are saving for the future when their circumstances might change. You may want to look for property in areas with strong capital appreciation if: you will need capital in retirement; you are saving for a future project i.e. portfolio expansion or you want a good value property to pass on to your children.
Research and refine your location
Once you know your aims this will help you find the right location to invest in. Areas that offer good yield tend to be those with average house prices but high rental demand, creating a good balance between invested capital and return on the investment. Places with good capital appreciation tend to be locations with a strong economy that due to growth, are only going to get stronger and places with high demand for property but limited housing supply.
Research supply and demand
When choosing the type of property to invest in – look at what people in the
area really want: are quality rooms going like hot cakes? Do houses linger longer? There is no point spending thousands converting a house to a HMO if there are already plenty on the market. Ask the advice of letting agents; ask residents and use property portals to monitor how long properties stay on the market. If you provide a type of accommodation that is in high demand and low supply, you may be able to ask for a higher than average rent.
Do your due diligence
you really need to do the maths on potential properties before you put down any offers, factoring in extra costs for mortgage broker fees, legal costs, stamp duty and any renovation work the potential property will need.
When applying for mortgages, you will need to be able to demonstrate that the rent received on the property will comfortably cover the mortgage payments, local property experts and letting agents will be able to help you with valuations. By this time you should have some idea of what type of property you will buy; find similar examples in your location on property portals and assess how much monthly rent is reasonable to achieve. If you find some potential properties on the market– ask a letting agent for a rental valuation.
Pick a property that will rent well; not necessarily one you’d live in
if you have capital to invest in property, its easy to spot a handsome terrace or quaint cottage and think, “ I love it”. Remember you are investing capital, not emotion into this property; it is there to provide comfortable, affordable accommodation for tenants, not for yourself. Think about the property in terms of how practical it is – is it low maintenance? Does it have good insulation? Is there space for parking? If you would like to know more about feature of a good investment property- download our free Buy to Let Starter pack for more tips on this area.
Consider renovation to add value
If you do have any spare cash after the Buy-to-Let deposit, or you are renting out a property you already own, look to add value wherever you can. Not only will an improved property rent better and possibly for a premium, you could significantly raise the value when it is time to sell. Common ways of adding value include: adding en-suites, renovating kitchens, creating a loft conversion or rearranging to the floor plan to be more space efficient and incorporate more bedrooms.
“Stand out from the bland”
It is important to maintain a high standard and smart finish to a property, especially in a well stocked, competitive local market. Adding some homely touches or a splash of colour to the rooms will impress tenants and if you look after the property and your tenants are far more likely to treat the property with respect. A simple throw, curtains, lampshade and wall art will set you back £50, but if that helps to let the room, instead of it standing void, it is reasonable return on investment.
To furnish or not to furnish
Generally speaking, if you are renting to a family, it won’t be their first property so they will more than likely bring along their own furniture. If you are renting to students or young professionals they won’t be able to afford to furnish a house so it is best to provide basic furniture. It is a firm expectation of HMOs and shared houses to have furniture. It is best to provide a bed, wardrobe, chest of drawers, and if letting to students don’t forget a desk! As a very loose rule: the smaller the property i.e. a room let or studio, the more appropriate it is to provide furniture.
Always consider health and safety
One of a landlord’s main responsibilities is providing a safe, hazard free home for their tenants. It is mandatory to have a yearly gas safety check on the property, before tenants move in. With regard to fire safety; all furniture provided by the landlord must comply with the Furniture and Furnishings (Fire Safety) Regulations 1988. Currently, you only need to fit fire alarms and extinguishers in Houses if Multiple Occupation, however from October 2015 it will be law to install working smoke and carbon monoxide alarms in all properties so it is best to provide these to be on the safe side.
This may make property investment sound complicated, and in many ways it is, however it is worth investing time and energy into research when you can achieve better returns on property venture than any other mainstream investment. Remember you don’t have to go it alone on your investment journey. Agents like Belvoir are here to provide impartial advice and we can also help you select, let and manage the right investment property.
If you would like further Buy to Let tips and information, come to one of our free Property Investment Workshops or call us to book an appointment.