Whether you are buying an investment property for the very first time or you already have a portfolio of rental properties, you are probably already acutely aware that choosing a buy-to-let property requires a completely different approach to that of finding your forever home. From calculating rental yields to attracting reliable tenants, there are many important steps to follow when choosing a successful property investment. Conveyancing Store are here to take you through them all.
What Makes A Good Buy-To-Let Investment?
This depends on what your overall aim is – Are you mainly focused on long-term capital growth or renovating a property to sell on in the future. If so, you want to look for a property in an area with strong growth potential. Maybe instead, you want to receive a monthly income while you own the property which means choosing a property with the potential for a healthy rental yield.
Budgeting For A Rental Property.
Purchasing a rental property usually means putting down a substantial deposit and unless you’re a cash buyer, it also means taking out a mortgage. Therefore affordability is probably the first thing you should address. Take a look at the following things you need to budget for…
Mortgages: Buy-to-let mortgages are more expensive than standard mortgages. They require a minimum deposit of at least 25% of the property’s value, and interest rates are usually higher. Furthermore, the best rates often come with high arrangement fees.
Rental Yield: You will also need to factor in the rent you are likely to get. Lenders normally want it to cover between 125% and 145% of your mortgage payments so if your monthly mortgage payment is £500, the rental income would ideally be between £625 and £725.
Upkeep: Remember to budget for the maintenance of the property and for periods when the property might be sitting empty between tenants.
How Is Rental Yield Calculated?
A Rental yield is how much you actually earn from your property. Yields are calculated as a percentage of the property’s value; generally, yields of 5% or more are most attractive to landlords. Whether or not this is achievable depends on where you buy and the rental costs in that area.
For example, a rental income of £10,000 per year on a property costing £200,000 produces a 5% yield. A rental income of £20,000 a year on the same property produces a 10% yield, and so on.
UK yields are an average of about 5.2%, but London yields may be lower due to the comparatively high property prices.
Attracting Suitable Tenants
Do you want to rent to families, students or young professionals? Consider this and go from here.
Then consider what is most important to your chosen demographic? Modern features, good schools, public transport? This would appeal to many young professionals and young families. If you want to attract students, a property with a good communal living area, good sized bedrooms near to a university and local bars might be what you’re after.
Where Do I Start?
Make a list of possible areas. Maybe start close to home sincs you know the area and can keep an eye on the property. However, if you’re going to pay a lettings agent to manage the property anyway, you may also consider looking further afield.
Look at key stats for the areas that are of interest to you. Research the local housing market, trends, and demographics by speaking to estate agents. Ask what prospective tenants are looking for and how popular your chosen area is with the type of people you want to let to.
You can view and compare solicitors fees instantly, even filtering by mortgage lender.
What Kind Of Property Should I Buy-To-Let?
The ideal investment property could be completely different to what you would buy for yourself. Whilst you may love older properties, these can come with hefty maintenance bills which are less than ideal for running a business.
If you want a property with broad appeal, consider the following:
- House Or Flat? – This will determine the type of tenant you’ll get. Young professionals or singles may want an easily maintained flat but a growing family may rather rent a house.
- New Build or Not? – There may be fewer issues with a new build property and they are less costly to maintain, but older buildings have more character and may be cheaper to buy, particularly if they need some initial work doing.
- Layout – A large communal space may suit students, but families may want gardens and more bedrooms for children.
- Gardens have a fairly broad appeal – provided tenants are willing to maintain them. For some, it could be an unwanted hassle.
Other Things To Consider
- Can you cope financially if your property is empty for a period of time?
- What will you do if your tenants don’t pay? Look into Landlords insurance.
- Will you use a letting agent?
- If not, you will need to do written agreements, take personal information, references etc yourself?
- If you use a letting agent and the property is un-tenanted will you have to pay letting agent fees? Don’t forget you will also have to pay your mortgage.
- Do you have a contingency budget for repairs?
- Tenancy agreements should be legal documents, you will need to have these drawn up
- You have many responsibilities to your tenants.
- Your property should pass relevant health and safety and fire checks:
- Gas safety certificates for all appliances
- Energy Performance Certificate (EPC)
- You will need specific landlord insurance
Compare The Best Buy-To-Let Conveyancing Quotes
View and compare solicitors fees instantly and even filter by mortgage lender: especially useful when getting a buy to let conveyancing quote.