History tells us that property prices always increase over time. It may be that as a landlord you will experience ups and downs in managing your property interests but for those who invest wisely, hold their nerve and stay in it for the long-term, the rewards can be great.
We have put together some guidelines designed to help you know what to look for when investing in a buy-to-let property, what to bear in mind and who to aim your property at.
Remember, there’s no guarantee that it will be possible to arrange continuous letting of the property, nor that the rental income will be sufficient to meet the cost of the mortgage. While no one says its easy, if you take it one step at a time you’ll make the right investment for you.
A buy-to-let mortgage
There has never been a better time to borrow money since, historically, interest rates have never been lower. Be aware that while there is every chance you will get a great deal on your investment mortgage in this climate, in the long-term that deal will change over time and you had better ensure the letting income will cover the mortgage now and in the next five years’ time if the rates increase.
Be prepared to reveal a lot of information about your finances to your mortgage lender, even if you are putting down a hefty deposit. Most lenders will expect you to prove that the rent you will be receiving is going to cover the mortgage; in fact, many will want the rent to cover not just 100 per cent of the mortgage but 125 per cent.
Choose the right letting agent
An online agency might be cheaper, but they are unlikely to know the local area or the right rental price in the same way haart’s dedicated lettings teams do. If an online agent gets it wrong and the price is too high, you could experience a costly void period. However, they could also undercharge, which can leave you with another painful outcome.
Before you buy, get the inside track
Make an appointment with one of haart’s experienced letting agents and find out which properties rent the quickest in your location, what tenants want and the types of properties haart really wants more of on its books.
We will be able to warn you if the property you are thinking of buying will have a lot of competition in attracting tenants, if there are too many of the same type in the area, or it is simply not a favourable area for those looking to rent.
Location, location, location
If you are aiming to become a landlord to families, make sure your buy-to-let property is in the right catchment area for a good school. It will undoubtedly push up the price of the property, but that will be reflected in the rent you will be able to charge. Ask our lettings experts for their advice.
Take a look around the area, too. Properties near organisations or businesses that employ a lot of people, are near convenient amenities such as a superstore, and have good transport links and parking, are sure to be attractive to potential tenants.
Know your budget
If you can only afford a studio apartment, it is highly likely that your tenants will not stay for long periods as they are more likely to see this home as a stopgap. The same can be true of one-bedroom flats, but it all comes down to who you want to attract.
If you know your one-bed flat is really only suitable for one person rather than a couple, then stick to your guns and hang out for a single person. They are unlikely to leave because the property is too small.
It’s all about the maths – ask yourself if you are doing this to either raise an income or to play a waiting game and see the capital asset increase in value. Either way, the rent has got to cover all your costs and then some. Always allow for at least three month’s void period in your annual calculations of the risk.
Houses of multiple occupation (HMOs) and student lets will always provide you with a better income, but you have to expect there will be a great deal more hassle that goes with the territory, so think long and hard about whether you can cope with this.
New build or old stock?
Our best advice here is do your research and haart can help you. New-build flats are very attractive to tenants but they are generally more expensive than older properties. Additionally, there will be a lot of competition from the owners of the other new-build flats chasing the same tenants.
What size of deposit do you need?
Currently lenders are wanting anything from a 10 to 30 per cent deposit, so it depends how much spare cash you have. If you are new to the letting market it might be better to put forward a smaller deposit, although beware, it may take you longer to find the right property and get it on to the market. But property is a waiting game, so there is nothing wrong with being patient.
How much to spend on doing up a property
If you rip out a kitchen and spend £10,000 replacing it, you will wait a long time to recoup the value. The property might let more quickly at a higher price but potential tenants who are choosy will generally have done their homework and are just as likely to opt for a property that has an OK kitchen but a smaller letting price tag. So if it won’t add value or increase the income significantly it is probably not worth doing.
While you don’t intend to live in the property someone else will, so it has to be made attractive enough to a potential tenant without you spending too much money on it. If there is mould in the bathroom, or on the window ledges, then address this; and it’s always a good idea to give the place a lick of paint and clean the carpets. There are certain items a tenant will always want; a washing machine, fridge and if the property is large enough, a dishwasher.
When you have the knowledge
If you are not new to the lettings business and you know that a certain type of one-bed property in your area is attractive to renters, then stick with what you know.
Once you take possession
Now you own your property, the hunt starts for a tenant. haart will be able to advertise your property through high-profile marketing both locally and online. We’ll hold your hand through the whole process ensuring that the tenancy and your property meets with the required legislation.
Our dedicated lettings teams will do all the tenant referencing to ensure you get the right tenants for your property and to minimise the risks to you. Call us on 0845 899 9999 or find your local haart lettings branch.
Here’s a quick checklist:
- Research a buy-to-let mortgage
- Choose the right letting agent
- Speak to your letting agent about the best type of property to buy-to-let in the area
- Work out your budget
- Decide if you want a new-build or old stock
- Speak to your letting agent about the property you’re interested in
- Work out what size deposit you will need
- Decide on how much to spend on doing up a property, if anything
- Know how much money you will make on the rental income
- Make an offer on the property
- Agree on a letting price
- Start the marketing of your property through your agent
- Let your property