Buying property to let has been a bit of a no brainer over the last few years. But as the property market changes, as a result of changes to the tax regime and more lately interest rates and Brexit, it’s important to become ever more careful when buying a buy to let investment. Here are some fails to avoid if you’re looking for a successful buy to let investment:
- Buying property you’d like to live in yourself. This is absolutely no guide to whether it will be appealing, or financially viable. Don’t let personal tastes get in the way of objectivity!
- Ignoring property you wouldn’t live in yourself. Just because a property is located in an area you wouldn’t consider yourself doesn’t mean someone won’t want or need to rent it. Similarly, properties that are unappealing to purchasers – for example on a busy road, over shops, next to commercial units, of non-standard construction etc. are often ideal for rental – people are less choosy if they’re only staying for a short while.
- Buying a property that’s too big …. or too small. There are exceptions, but there’s relatively little demand for tiny one bed pads or huge 5+ bed mansions. Average two/thee/four bed properties enjoy most demand.
- Buying property that’s too, well, too good for the rental. Yes you want to provide a good standard of accommodation for your tenants, but most tenants are driven by location and value for money when choosing a property to rent. There are exceptions (such as prime London rentals) but most tenants would rather have an affordable property in a place they want to live than, for example, solid oak flooring or an expensive German kitchen.
- Not checking out tenant demand. Does anybody actually want to rent the sort of property you’re thinking of buying? Conversely, is there actually a waiting list for that type of property? Letting agents can give you the lowdown on demand.
- Not checking out actual rents. Just because that type of property is advertised as £700pcm or whatever doesn’t necessarily mean that’s what landlords are receiving. It could well be less, or it could even be more. Again, letting agents will tell you if you ask.
- Not targeting your tenant. Before you buy, know what sort of tenant you think will want to rent your property, eg. young professionals, families, students, whatever. Only once you know that will you be able to select the best property and estimate demand and rents.
- Only targeting the ‘professionals’ market. There can be downsides, but other tenant groups such as students and housing benefit tenants in general offer better yields. Fact.
- Paying too much. Paying over the odds for a property, no matter how good, can equate to throwing away several years of rent before you’ve even started. Aim to buy below market value property where possible, such as buying from motivated sellers or at auction.
- Spending too much on renovating a property. Sometimes buying a fixer upper can be a good way to get a bargain, but spending £10k/£20k/£30k on renovations will take years to repay in rent. Normally it can be cheaper and easier to buy a property that is ready to rent, or which only requires cosmetics.
- Not working out the yield on your money. Yield is calculated as the annual rent divided by the purchase price (x100). Make sure that’s offer a good return on your money and on your efforts. If/when interest rates rise property won’t be the obvious choice for your money that it is now.
- Focussing on capital appreciation, not income. Right now, this is probably the most spectacular buy to let fail you can make.
In the boom years most landlords made money from an annual rise in value of their property with the rental income almost being secondary. Today when steady rather than spectacular house price rises are probably the best you can hope for income is as or more important than capital appreciation.
Whether you’re new to buy to let, or a buy to let expert, it’s always a good idea to take buy to let advice at every stage – there’s plenty of help available.