House hunting for that perfect buy to let investment? The experts at Belvoir reveal five things to consider before you commit…
√ Property hot spots
Prime postcodes and sought after addresses sell properties and they help let them too. One of the most valuable keys to unlocking the door to a good investment is property buying in the right location.
Location is important for various reasons. As well as assessing the area for achievable rental yield, plus potential for capital appreciation, another important consideration when looking at location is what facilities the property will be near.
Just some of the important features for a tenant will be local amenities (shopping and entertainment), transport links (public transport as well as road links), local schools and the quality thereof. Also think about crime rates in the area where you will be investing.
Ensure it is a desirable location for tenants and a place where they would be happy to live. Personal safety and a secure environment for their possessions are often at the top of a tenant’s wish list.
Investing in a property in a low crime rate area and with a good reputation is also advisable in order to attract good quality tenants… and essentially to protect your asset too.
√ Market matters
Ensure your investment choice is suitable for the target market. Remember, you’re not going to be living there, they are, so choose a property with their needs in mind not your own.
Thinking about your target market is essential when investing in a buy to let property. We see many people coming to our offices who’ve bought a property that they have fallen in love with instead of one that would be more suitable for the target market and would likely have achieved a better rental yield.
It is also important to consider the quality of the property and the types of tenants that it will attract from a dilapidation point of view.
A rental yield may be considered high, but if the property is not looked after because of the type of tenant that is attracted, resulting in high refurbishment costs on a regular basis, then the overall return on the investment will be affected.
Keeping void periods to a minimum is also important, so areas with a high tenant demand should be considered.
√ Do the maths
Even the most well-presented of properties in prime locations are not going to make good buy to let investments unless the figures add up.
Buying a financially sound investment is not as straight forward as finding a property that can achieve the highest rental yield.
I advise my landlords that it is also important to look for a property in a location with a reasonable capital appreciation. When taking the rental value as well as capital appreciation into account, the overall return on the investment can be seen.
If a landlord is looking at a short to medium term investment (say up to five years), they will probably need to look at properties in an area with a higher capital appreciation, whereby their return on investment will be primarily the profit achieved on the sale price.
Landlords looking for a more long-term project (i.e. the property being used as a pension) should look for a good mix of rental yield plus capital growth.
In addition, look at the sale price in conjunction with your current financial situation. Do you need a mortgage? If so, how much? Will the rental return cover monthly payments… and what if these go up? Plus, do you have the capital available for any necessary renovation and repairs, and a contingency fund for ongoing maintenance moving forward.
√ Know your exits
Before you ‘get in’, know how you’re going to ‘get out’! A clear and comprehensive exit strategy should always be part of the planning process before committing to an investment property.
You wouldn’t commit to any other investment without knowing what you wanted to achieve, and the same goes for buying an investment property. Also, you can’t possibly assess whether it’s going to perform well against other investment options unless you know what your short-term and long-term goals are.
Your intentions should be clear in order for you to get the most out of your investment – if you don’t know what your exit plan is from the very beginning then you can’t choose wisely.
You need to know how long you’re intending to keep the property and if it will be able to achieve the right return given these timescales – whether that be through rental return, capital appreciation or both.
Have a clear exit plan from the outset and, if your personal circumstances change, then re-evaluate your property portfolio to make sure it’s still meeting with your investment requirements.
√ Ask the experts
Prior to signing on the dotted line, ask the experts! A good letting agent will be able to advise you and steer you towards the best investment for you.
The best way to identify your target market and the best investment available would be to get advice from several different letting agents in the local area.
A good letting agent should be able to give you sound independent advice about a property’s rental potential, it’s suitability for the local rental market, plus whether it’s likely to be a successful investment in line with your budget, requirements and needs.
