26 Nov 2024

Purchasing a Buy to Let: Top 10 Things to Consider

Category: Buy-to-Let

Are you considering purchasing a buy-to-let property to improve your investment portfolio, but not entirely sure what to look for? Although investing in property can be both rewarding and profitable it is not without its risks. It is important that you consider many factors before investing in a certain property. This ensures you achieve the best returns possible and minimise potential risks.

This article lists our top 10 important factors to be considered when purchasing a buy-to-let property. By following this checklist carefully, you should be confident that your investment will prove profitable for years to come.

Author: Sophie Hope

Digital Marketing Executive

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Are You Starting Your Property Search?

Starting your search for a buy-to-let property can often be daunting. Especially if you are a first-time buyer. First and foremost, you should get a full understanding of your finances and your affordability before commencing your search. It is always helpful to have an initial conversation with a mortgage broker to discuss your financial situation and get an agreement in principle. You can then confidently start your property search within a defined price bracket.

Once you understand your affordability you can decide on a particular region you want to purchase in and the type of property you want to buy. We recommend beginning your search on property portals such as Rightmove, Zoopla and On the Market. Use this time to get an understanding of certain buy-to-let markets and what you will be able to purchase.

Once you have completed some of your own research, understand your preferences and have some familiarity with preferred property markets. You should then speak to a specialist investment agent. They will provide invaluable insight into the buy-to-let industry and guide you through potential investment opportunities.

1 | Location

That age-old saying ‘location, location, location’ has and remains one (or three) of the founding principles of property investment. The location of your buy-to-let should be at the forefront of your mind during any property search. If it is not, then you might just live to regret it. To find the best buy-to-let locations it is important to look at many factors including, price growth, population growth, regeneration plans, and local amenities. Discover how to find an investment hotspot, here.

2 | Quality

When choosing a buy-to-let property to purchase it is important that you are confident with its quality. This is crucial for two reasons in particular. Firstly, a higher quality property will secure a tenant more easily as people prefer a good standard of rental property. This is especially true as homeownership continues to decline and people are renting for longer.

Secondly, a higher-quality property will cost less to maintain. A buy-to-let property is an investment and any maintenance will impact the returns it can achieve. Purchasing a low-cost property might initially seem like a good investment, but it may end up costing more in repairs and maintenance leading to a loss of income.

3 | Purchase Price

The higher the purchase price of a property, the more additional costs go up so you must ensure the rental income covers these. Additional costs may include mortgage interest payments, service charges, ground rent and lettings and management fees.

Some investors prefer a higher rental yield whilst others are more concerned with the property’s capital growth. Either way, the purchase price is crucial in ensuring the returns are profitable. If you overpay for a property, it is unlikely that the rental yields will be attractive. Furthermore, some of the room for capital appreciation will already be used up if the cost of the property is already near or above average for the area. Meaning you will have to wait longer to see an increase in value.

4 | Rental Prices

Along with the purchase price you will need a good understanding of the rental prices achievable in the area. Much like with the purchase price you should undertake due diligence when determining a property’s rental value. When investing in a buy-to-let property the associated costs must be covered by the rental payments to ensure profitability.

Ensure your comparison is based upon similar quality and sized properties in the same area. You should also pay attention to how long the properties have been on the rental market before drawing definitive conclusions. After all, void periods will eat into profits enormously.

5 | Regeneration

The regeneration factor is crucial to any property’s capital growth prospects. Investing in property in areas undergoing large-scale regeneration can prove to be some of the most lucrative investments. Large public and private investment will see businesses and hospitality move to the area, increasing tenant demand. Furthermore, new public spaces, attractive architecture and useful amenities will increase an area’s appeal.

Regeneration will have the effect of increasing the value of your buy-to-let property. The best part of this is that you do not need to spend a penny to see this return. It is important to get in early as lower-priced properties within regenerating areas are snapped up very quickly and will see the largest value growth.

6 | Job Market

When choosing where to invest you should strongly consider the employment rates of the area, the calibre of employers that are located there, and salaries that are achievable. The strength of a job market in any given town or city has enormous consequences on its overall prosperity. It also has tremendous effects on an area’s property market.

A strong employment market with high salaries helps drive up rental prices as more young professionals move to the area. Furthermore, a high employment rate reduces the chances of tenants going into arrears. Mitigating this risk can provide needed investor confidence.

7 | Local Demographic

Knowing the local demographic helps target tenant’s demands, which is one of the most important factors when it comes to finding an investment. This will allow you to be one step above the rest of the market and receive high demand, leading to a higher rental income.

For example, in a central area with a young demographic, an apartment is more likely to appeal to them. Whereas, if an area has more families, the best option would be a larger suburban home. It is important to look at the demographics in the area to ensure your buy-to-let receives a strong demand.

8 | Local Amenities

We live in a world where convenience is held in the highest regard. People like to have shops, gyms, public transport, restaurants etc all within a short distance from where they live. It is important that you consider the level of amenities available in the local area as this will have a direct impact on your tenant demand.

A buy-to-let property within striking distance of supermarkets, gyms, restaurants and train stations will have huge tenant demand. It is important, however, that this does not come at a cost of privacy for the tenant. Also, on-site amenities are becoming increasingly popular, with tenants willing to pay more for the convenience.

9 | Charges

Apartments are almost always leasehold properties as opposed to Freehold. Leasehold properties will be subject to additional charges that must be accounted for when purchasing as they will impact your returns. The two main charges will be ground rent and service charge, and these can differ enormously depending on what development you purchase in.

Service charges will be based on the cost of running and maintaining the building and communal areas. They therefore increase depending on the facilities your tenants benefit from. Ground rent, on the other hand, is rent that is paid to the owner of the freehold. It offers no tangible benefit and should be viewed with caution.

10 | Property Management

Finally, you will need to carefully consider how you will manage your buy-to-let property. Should you wish to manage it yourself it would be wise to look for properties within a reasonable distance of your home. A buy-to-let property on the other side of the country and managed by yourself can turn into a nightmare.

At CityRise we recommend using professional lettings and management services and avoiding doing it yourself. By selecting a reputable agent, you will achieve higher rents, and lower void periods and your tenants will be looked after 24/7.

Key Tips

The three most important factors of purchasing a property are location, location, location.
Be aware that maintenance will eat at your profits and could leave you with a property costing more than it makes you.
If you want strong returns without lifting a finger, look at what others are doing in the area. Purchasing in areas undergoing regeneration can make you rich quick. But make sure you get in early.
Think carefully about who your desired tenant is and what they are looking for from a property.