Purchasing a buy-to-let property can make good financial sense, providing you’ve done your research before entering the market. There are many different considerations you’ll need to make, from finding out more about your chosen location to knowing exactly who your target rental market will be.
Here are just some of the factors you’ll need to weigh up before buying your buy-to-let property.
Being a landlord
Firstly, you need to decide what kind of landlord you want to be. Do you want to get involved with maintenance and renovation work, or would you rather keep your involvement to a minimum?
If you are happy to do work on your investment property then it can be profitable to buy an older home to renovate before you let.
New build homes can be beneficial if you want your investment to take care of itself. Many come with a warranty under the National House Building Council’s (NHBC) Buildmark Scheme. This will cover the cost of rectifying damage to your property for 10 years if the builder didn’t meet NHBC standards during the construction process.
Day-to-day maintenance and decorating will also be minimised with a new build. Depending on the rental agreement you draw up, tenants may also get the opportunity to make the home their own, which could increase its appeal over older properties.
Know your area and your tenants
Finding the right area and understanding what tenants want go hand in hand when choosing a buy-to-let property. Remember you’re not buying for yourself but for your tenants - you need to find a property that other people want to live in.
Different features of your buy-to-let property will appeal to different people. An eMoov survey found that 25% of people on the lookout for a new home consider superfast broadband as a major advantage, while 33% believe a neutral colour scheme is important. This is why it’s essential to research your target market so you can choose a home that will tick all the right boxes for tenants.
When it comes to finding a location, make sure you don’t decide to stay local simply because you know the area. You might find that nobody rents property there, which will make it difficult to find tenants and could mean your property remains empty for long periods of time.
Talking to people with experience of the local area is often the best way of finding out more about what it has to offer. If you’re appointing a lettings agent, they may be able to offer some valuable insight from a professional perspective.
Many people debate whether emotions should play a part in any house purchase. There’s no argument with buy-to-let – the property you buy should be a business decision and it will benefit you in the long run if you can stay objective.
You should treat the purchase as seriously as if you were buying your own home, if not more so. Visit at different times of day and walk around the local area so you get a feel for what it would be like to live there.
Bear in mind there are many different regulatory issues you need to know about, which you might not have first-hand experience of if you haven’t invested in property before. Some people choose to overcome this by appointing a property management company, who can work on your behalf and ensure the smooth day-to-day running of your investment.
The National Landlords Association recommends having someone on hand who can help make sure the investment remains profitable, while keeping up with any changes in the law.
Understand the money
You will also need to know more about the financial implications of your purchase. As well as the upfront cost of the property, you need to know about buy-to-let mortgages, rental yield, tax, potential maintenance costs and the future of your investment.
Figures from the March 2016 HomeLet Rental Index show the average UK landlord receives around £755 per calendar month from their investment, when London is excluded. This marked a rise of 4.9% from the same month of last year, suggesting there are decent returns to be made on this type of investment property.
Choosing the right mortgage, location and tenants will help ensure you’re making the maximum returns on your investment. Speaking to a mortgage broker and a financial advisor can help put you on the right track, and give your buy-to-let the best possible chance of success from day one.