What should you look for when purchasing a buy-to-let property?
By Molo Finance
Buy-to-let investments are still profitable ventures — if they are done correctly. When viewing a property, it’s in our nature to make decisions that are led by emotions. Buy-to-let investment requires a stone-cold approach that removes any emotive feelings.
You’re making a business decision, so it’s important to make one that will see you reaping the benefits. Yields, the type of tenants you want to attract, service fees (if it’s in a flat) — these are all vital aspects that should be considered.
If you’re a little lost when it comes to knowing what to look for in an investment property, fear not. We’ve put together some useful tips to help you make an informed decision about purchasing a buy to let.
Location, location, location
The location is always the first parameter when searching for a property. If you were buying somewhere to call your home, the property would need to be in an area that you want to live. Fortunately, investment properties don’t mean that you’re rooted to buying in the same area where you live.
The numbers come first in the buy-to-let market, and it might be that you live in a town or city where yields aren’t enticing. Research is always key, as is having an open mind. It’s better to cast your net further afield to give yourself a wide variety of options.
I like big yields and I cannot lie
Yields will play a big part in your decision to purchase a buy to let. The yield is how much you will get in rent in comparison to what you paid for the property. Yields change with property trends, and it’s worth weighing up the reasons why you want an investment property.
If you plan on keeping it for the long-term (15–20 years), then you should look at areas with high yields. Manchester, Leeds, Nottingham — these are all cities with lower purchase prices and monthly rent, but they offer higher yields.
Those who place more emphasis on faster growth in property value won’t hold yields in such high esteem. People buying a property, hoping to sell it in a couple of years for an increased price, will likely purchase outright and usually won’t take a mortgage.
To manage or not to manage
Will you manage the buy to let or use a property management company? If you want to manage the property, it’s worth looking for somewhere that is easily reachable from your home. You won’t be required to go there often, but it might be comforting to know you’re nearby in case of any significant problems that may arise.
The location of your buy to let isn’t as important if you’re happy using a property management company. A professional organisation will manage any issues that arise, from fixing appliances to handling tenant check-in and check-out. The fee for using a property management companies is dependent on negotiation but is usually four or five percent of the monthly rent.
View from the top
Make sure that you are aware of any extra costs if you are investing in an apartment. Service fees will be your responsibility — not that of the tenant. Some service fees can be as high as £3,000 per year, which is £250 a month. Suddenly that monthly rental of £1,000 doesn’t look quite as appealing. Agents don’t often advertise service fees, so make sure you always ask upfront when enquiring.
There may also be planned works on the building, which would mean you are liable to pay a part of the cost. Your solicitor will run a check to see if there are any additional works planned before you purchase the property. Even if the result shows no potential building work, it’s still possible that fixes — painting the exterior, new carpet for the communal area — will be required in the future.
Type of tenant
Every landlord wants a good tenant, someone who looks after the property and always pays the rent on time. Will you target students, families or single professionals? Students tend to rent cheaper accommodation unless it’s in London, where international students often pay prices in line with market demand.
Families are more likely to require a house but be wary as the market for families looking to rent isn’t overflowing with demand. Professionals fit the stereotype of the traditional renter. They will probably be a few years into their career and favour long-term renting to staying at home and saving for a deposit.
Will you go for short term or long-term rental? Most landlords go for a 12-month AST (Assured Shorthold Tenancy), but some prefer short-term lettings. You can charge more for shorter stays, but you increase the chance of void periods and agent fees.
Finding the right property
Purchasing a buy to let is an exciting but daunting experience, especially if it’s your first time. If you do your due diligence and research the market, you will put yourself in a stronger position to find a buy to let that offers a good rental return and has good tenants.