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Starting Your Property Search
Starting your search for a buy to let property can often be daunting. Especially if you are new to investing in property. First and foremost, you should get a full understanding of your finances and your affordability before commencing your search. It is always prudent 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. Using 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.
Top 10 Factors When Purchasing a Buy to Let Property
That age old adage ‘location, location, location’ has and remains one (or three) of the founding principles of property investment. The location of your purchase should be at the forefront of your mind during any property search. If it is not, then you might just live to regret it.
Many of the factors below make up the overall location factor. However, it is important that you consider it as a whole when choosing a particular buy to let property.
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 tenant easier as people prefer a good standard of rental property. This is especially true as homeownership continues to decline and people are renting for longer. As young professionals begin to achieve higher salaries, they look for higher quality properties to rent.
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, and this might be the case. However, should it be low cost because it has hidden improvement requirements then you could make a significant loss. When purchasing a buy to let property there is a clear balancing act between the price and the quality of the property.
When investing in a buy to let property it is important that the associated costs are covered by the rental payments. Such costs include mortgage interest payments, service charge, ground rent and lettings and management fees. The higher the purchase price the more these costs go up so you must ensure the rental income covers this.
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 good. 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 due to the high price, meaning you will have to wait longer to see an increase in value.
It is not uncommon for investors to overpay for a buy to let property and be left with an underperforming investment. Make sure you do your due diligence on the local area and property prices, ensuring you are getting the most value from your purchase. Take into consideration the location, size, build quality, amenities and views when making comparisons with other properties.
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 stringent due diligence when determining a particular property’s rental value. 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.
The regeneration factor is absolutely 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. This is because these areas, by their very nature, are being transformed from run down to attractive. 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 curb appeal.
Regeneration will have the effect of increasing the value of your buy to let property. Sometimes at astonishing speed. 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.
It is advisable to check planning portals in your desired cities. From there you can check the status of planning applications. Getting in early will allow you to achieve the most attractive returns from your buy to let property.
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. 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.
A strong employment market with high salaries helps drive up rental prices as more young professionals move to the area. Furthermore, a low employment rate reduces the chances of tenants going into arrears. Arrears and void periods are both important factors that all landlords must account for when investing in buy to let property. Mitigating this risk can provide that much-needed investor confidence.
Understanding the local rental market and the demographic of renters in the area is crucial when choosing a buy to let property. With approximately 50% of all private tenants being under the age of 35 it is important that you invest in an area that is popular with younger generations. After all, they are most likely to be your tenants. City and town centre buy to let’s offer the most security in this regard with younger people preferring to live closer to the action. However, there are certain suburban areas that have become increasingly popular with young populations.
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 touching 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 buy to lets 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.
Furthermore, on site amenities are becoming increasingly popular. Initially found in private rented scheme’s (PRS) but more and more in new build developments. Developers are including concierges, gyms, resident lounges, roof terraces, cinema rooms and sometimes even swimming pools in their developments. Buy to let properties with these amenities will benefit from fantastic tenant demand and landlords will be able to demand higher rents.
The buy to let rental market is quickly becoming dominated by apartments because of their strong returns and high demand. Apartments are almost always leasehold properties as apposed 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. Of course, much of these are covered by the higher rents you will be able to charge.
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. Ensure that any buy to let property you consider purchasing has ground rent around 0.1% of the purchase price. Specifically, you will want to stay clear of buy to let properties that have doubling ground rent.
Finally, but no less importantly, 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 buy to let properties within a reasonable distance of your home. A buy to let property the other side of country and managed by yourself can turn into a nightmare.
At CityRise we recommend using professional lettings and management services and avoid doing it yourself. By selecting a reputable agent, you will achieve higher rents, lower void periods and your tenants will be looked after 24/7. However, you will want to ensure that management costs are reasonable and do not eat into the monthly rent. Find out more about CityRise lettings and management services here.
1. The three most important factors of purchasing a property are location, location, location.
2. Be aware that maintenance will eat at your profits and could leave you with a property costing more than it makes you.
3. 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.
4. Think carefully about who your desired tenant is and what they are looking for from a property.
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