For one reason or another, buy-to-let investments are never out of the press these days. While the recent changes to the Stamp Duty rates have caused consternation in some parts of the media, others recognise that there are still fantastic benefits to holding property – especially as part of a diversified investment portfolio.
However, the fact remains that things are not as simple as they once were in the buy-to-let market, so it’s prudent to rack up as much knowledge as you can before you dive in. That’s why we decided to put together a list of points to bear in mind when investing in buy-to-let property, all of which will help you get the most from your investment - both over the short and long term.
1. Do your homework
The fact that you are reading this shows you’re willing to put in a little effort when it comes to research, and that is most definitely a good thing when it comes to buy-to-let investments. Getting to know the area you are thinking of investing in is always wise, and it’s never been easier than it is now to get down to the nitty gritty thanks to the World Wide Web.
Look for analysts’ forecasts and predictions and cross reference your results to give yourself a balanced view. Ask local estate agents for their opinions and speak to friends and family who may live in the area to get their take on the pros and cons of what it’s like to be a resident in that particular city, town or borough.
You can also do a bit of physical research, too, by spending some time in the area yourself. Look around for tell-tale signs of a great location. Proximity to public transport, what the schools are like, and even whether or not the area has a Waitrose can all point towards a solid investment opportunity.
If you have heard that the area is ‘up-and-coming’, keep an eye out for new businesses opening up. Gyms, delis, and independent eateries can all be good signs, as can a proliferation of building work being carried out close by.
2. Don’t be afraid to look further afield
While it may feel comfortable opting for a property just a few streets away, looking at property outside of your immediate vicinity may offer you a better investment. Look at areas that are already performing well in the buy-to-let market and keep an eye out for things that will attract young professionals to your postcode of choice.
East London and Essex both fit the bill in this regard, and the new all-night tube service on both the Central and Victoria Lines is sure to attract those who want access to the heart of the capital without paying the exorbitant rental prices currently being asked in Zones 1 and 2.
3. Draw up a realistic budget sheet
This may seem like an obvious statement, but many first-time investors get carried away with the romance of buying property and fail to do the necessary math before putting their money down. Do not be one of those people!
Look at additional costs you may incur during the purchase process, as well as any ongoing maintenance bills that may come your way. Factor in your expected rental income, but always bear in mind that your property may sit empty for a period of time – how long can you manage to keep up the payments on your own if need be?
The best investors always look towards the worst case scenario, and you should do the same. Always ask yourself, ‘What happens if?’.
4. Don’t be too eager
Just because you’ve suddenly decided to become a landlord doesn’t mean that you have to leap into the property market within the next month! Be prepared to wait things out if necessary. Finding the right property is what’s important, not simply having any property.
Again, your research will stand you in good stead here. Knowing what the average property price is in your area of choice is essential if you want to make the most from your investment opportunity. Buying on the high end will automatically put you at a disadvantage, so it’s often wise to pass and wait rather than dive in simply because you’ve fallen in love with a place. Remember, this is going to be an investment, not a home to live in.
Similarly, do not try and get too cute with fluctuating markets either. Trying to buy on the low end of a property market that is constantly showing peaks and troughs can lead to big trouble. Slow and steady wins the race, especially if you are investing for the longer term.
5. Know your tenants – before you buy!
Having an idea of who your prospective tenants will be can be extremely beneficial when it comes to selecting the right property to invest in. Obviously we are not talking about actual people here, what we mean is simply getting an idea of a certain demographic can dramatically influence your decision.
Will the area that you are looking at be more likely to attract families than young professionals? Is there a large student population that could be a regular source of tenants for your property? Getting a handle on who will likely be renting your property will enable you to purchase wisely and furnish it according to their needs and wants.
6. Seek out the best mortgage
Another no-brainer you’d think, but people still go to their own bank and simply take what’s offered to them. Maybe it’s comfort thing, but it’s certainly not a wise move if you are looking to make the most from your investment.
Do a bit of legwork yourself and trawl the internet for the latest deals and offers. Comparison websites can be extremely helpful, but remember to check them all out rather than simply opting for one. Many of the once independent comparison sites are now owned by the big banks, and they are only going to show you the selection that they want you to see!
Taking the advice of a reputable independent broker can also be a good move. Not only will they be abreast of all the latest deals, they’ll also be able to give you solid advice on what type of mortgage will suit you best. We highly recommend that you give David Cade of Clarity Financial Management a call on 01277 633 300 / 07860 198 945 if you want sound advice regarding your mortgage arrangements.
7. Don’t overstretch
As tempting as it may be to go for that perfect property just outside of your price range, don’t do it. Spending within your budget is absolutely vital if you wish to make a go of buy-to-let investing. Sure, you can see the potential in the property and you may be convinced that you’ll make a killing over the long term, but it’s far wiser to step away and look elsewhere than to move outside of your financial comfort zone.
Remember that the best buy-to-let investment should offer you something from both the short and long term, so always keep rental yield in mind. Investing for income is a much better use of your money than gambling on capital growth when first starting out. Therefore, make sure that rent is the number one consideration when looking to buy, not the potential sale price in 10 or 20 years’ time.
The last word
Buy-to-let is still an extremely viable investment opportunity, and there are plenty of people taking full advantage of the vehicle each and every year. However, it is not as easy as it once was, so it’s vital to weigh up whether or not it is going to be right for you.
If you decide that becoming a landlord is going to be the next step towards creating a healthy investment portfolio for you and your family, keep the above points in mind. Most of all, don’t be afraid to ask for help whenever you need it.
Petty Son and Prestwich have helped numerous people realise their buy-to-let dream, and we’d be delighted to give you any friendly advice you may need. So, if you have any questions regarding buy-to-let in East London, West Essex or beyond, please feel free to drop us a line or pick up the phone.