Before committing to an investment property there are two main questions you need to ask yourself. Firstly, is it going to make a good rental property? And secondly, can you get it at the right price?
Successful investors know that the answer to both of these has got to be yes before signing on the dotted line.
Is it the right property?
A cheap property is not going to be a bargain if it’s unlikely to rent well and you are left with long periods of void. So, always choose carefully to ensure a profitable monthly return on your investment.
“As a rule properties that are usually attractive to tenants have the following: large bedrooms with built in cupboards, more than one bathroom, a large kitchen, parking to front or side, secure storage for a motorcycle or cycles, practical flooring that is easy to keep clean, gas central heating and double-glazing,” says Terry Lucking, proprietor of Belvoir Peterborough, Cambridge and Corby. “They should also be bright with lots of natural light, plus being one of the most attractive properties on its street helps to ensure a swift let too.”
As location is key, it’s also essential to think about the area you’re buying in.
“Always do your due diligence and know the area,” says Zain Mahal of Belvoir Stratford. “Is it in an area popular with renters and are there plenty of local amenities, such as schools and shops?”
Nearby transport links, such as railway stations and motorways, can also be good ‘selling points’ when you’re looking for a tenant. Luke Mason, proprietor of Belvoir Hitchin, advises, “I think investors should look at where they are investing their cash and what that particular town or city has going for it, such as a university, good train routes to London and a good employment rate. They should consider factors such as is it walking distance to a train station, does it have plenty of parking and is it in a safe neighbourhood? A property that will let quickly time and time again should also play a huge factor in deciding.” And, don’t forget to forward plan too. Are there any imminent changes due to the area that could make your property more popular… or less. “Investors should also consider future area development,” advises Wayne Mearns, proprietor of Belvoir Southend-on-Sea. “Are there plans for a busier airport or new industrial estate or a big name moving into the town? Often the council can help with this information.”If in doubt, take advice from the experts – a local letting agent will be able to guide you about what is and isn’t likely to let well.
Is it the right price?
Although it’s extremely important to find the right property, there’s little point investing in a fantastic ‘renter’ if the initial outlay is going to affect your rental yield, damage your profits and not allow room for capital growth. So you must do your maths too!
“Investors have to always keep in mind that they are a property investor and, as such, ideally want to make a profit on their investment from day one,” says Zain Mahal. Terry Lucking agrees and says, “Always make sure that the monthly rent (after letting and management fees) will cover an interest-only mortgage, plus remember that interest rates can go up as well as down.
“Find out what your rental return is likely to be by checking rental prices of other properties available to let, plus talk to a local letting agent about what demand there is for this type of property – it varies area by area.”
Wayne Mearns suggests, “Ask the agent to produce a Rightmove price report. This will give information on how much properties let for (the rent per calendar month) in what area and how long they were on the market for. It shows all agents and both present properties and archived. This will give a precise view of current market conditions and where’s best to buy.”
Knowing what your yield percentage is likely to be will also give a good indication of which property will work out to be the most profitable. “Work out the yield to see how it will compare with other properties available by doing this quick calculation,” says Luke. “As a rule: rent x 12 divided by the house price x 100 will result in the yield.”
Always do your research thoroughly and look at what other houses in the area are being sold for too – and what prices have been achieved – to make sure your potential investment isn’t currently being over-valued. “Contact at least two selling agents and ask realistically what you would get for a house like this if you planned to sell one – it may be very different to the asking price,” says Terry. “Also check historic sold prices with online price paid websites.” But, most of all, let your calculator come up with the answer… not your heart. “Avoid becoming emotionally attached to the house,” says Terry Lucking. “It is an investment not something for you to live in. And, if you are in any doubt, don’t be afraid to pull out.”
Room for negotiation
As an investor you’re in a good position to negotiate and a successful negotiation can sometimes make the difference between creating a profitable business solution or having to walk away.
“Take advantage of your financial position and put this across to the vendor or estate agent, as you are likely to be ahead of first-time buyers,” says Zain Mahal. “Take advantage of being an experienced investor who can complete swiftly and has no chain. Even if your offer is low discounts can normally be negotiated in order to generate quick sales. As a rule generally start negotiations off low as most people are prepared to meet in the middle of what they are asking.” Always consider why the vendor is selling too – his or her circumstances could be the key to you buying at a good price. People want quick sales for many reasons, including the following:
1.) Their current mortgage deal is coming to an end
2.) Waiting for this house sale is preventing them from buying a house they’ve already fallen in love with
3.) A marriage break-up means the property is currently empty
4.) Job relocation is forcing them into a speedy move
5.) Redundancy is pressurizing a down-size.
“People who need a quick sale are more likely to consider lower offers,” concludes Zain. “And always remember a house is only worth what you are willing to pay for it, not what a vendor is asking.”
Questions to ask yourself – at-a-glance
• Why is the vendor selling?
• Will a quick sale allow for negotiation?
• How much will the mortgage payments be?
• How much are other houses in the area being sold for?
• Is the property currently over-valued?
• What will the monthly rental return be?
• Are there any other hidden charges to consider?
• Is the property likely to show good capital growth?
• What will my rental yield percentage be?
• Does the property need renovating?
• Do properties rent well in this area?
• Will the property need much on-going maintenance?
• Is the local market already flooded with rental properties?
• Are other local landlords facing periods of void?
