Top Tips for Buying Your First Rental Property
Are you thinking of buying your first rental property? The world of buy-to-let is one many of us dream about. The idea can seem too good to be true. Buy a property, rent it out, and watch the income roll in. However, it is not always that easy. There are plenty of extra details to consider when it comes to buying a rental property. If you are tempted to step onto the property ladder, check out our top tips for buying your first rental property.
Do Your Research
It can be tempting to jump headfirst into buying a rental property, but first, you need to make sure you know everything you need to know about the market. This may seem like an obvious tip, but by ‘research’ we do not just mean reading the specification and pricing up your assets. When it comes to purchasing your first rental property, you can never research too much. Here are some examples of research points you might want to consider:
- What is the job growth rate?
- Is there strong rental demand?
- What is the average income of the area?
- Are there any regeneration projects in the pipeline?
- What are my achievable rental yields?
- Is there a strong population growth?
You might find a property and fall in love with it, but the area it is in might have a slow-growing population. Doing as much research as possible is an essential tip before you jump right into buying a rental property.
Location, Location, Location
As noted in the previous tip, researching the location is equally as essential. Broadly, you should be looking at the locations economic growth, regeneration projects, and rental demand. However, you should pay attention to and question the following:
- What amenities does the area have?
- Is the crime rate low?
- Are there any schools or universities?
- What is within walking distance?
- How many rental properties are there in the area?
- What are the demographics of the area?
As part of your due diligence, you should be keeping an eye out for neighbourhoods that fit within your market. That way, you will be able to source the most profitable investment.
Calculate Your Expenses
As you begin to search for rental properties, you should be making sure the property is going to produce to income and profit margin you are looking for. Researching the area and the current market will provide an excellent overview of possible rental rates.
Then, you need to calculate your operating expenses. If you choose to self-manage your property, operating expenses can range from anywhere been 35% and 80% of your total income generated by the rental property. For example, if you are charging £1,000 for rent, your expenses could come in at £400 per month (equal to 40% operating expenses.) However, you need to make sure you have a buffer fund for unexpected upkeep. It will not just be general maintenance that takes chunks out of your income, but emergencies such as roof repair, burst pipes, and unforeseen damages could take another 20 to 30%.
Creating a budget is a great way to keep on top of this. Making a budget (and sticking to it) will ensure you will never get in over your head with your investment. You will need to factor in the purchase price, maintenance, any renovations, emergency fund, and any additional costs it takes to place a tenant in your property.
Knowing Your Laws
Landlord-tenant laws are complex and constantly changing. It is important to understand your tenant’s rights and your obligations to avoid any difficult legal issues. If you choose not to self-manage your property and use a property manager instead, then you can skip this tip. Using a property management service will take away any of the legal complications which can often be the most complex aspect for first-time buyers to get their heads around. To read more about our Lettings & Management Service, visit our website here.
The 1% Rule
Your goal as a property investor is to make a consistent profit. The 1% rule can be used as a useful guideline. According to this rule of thumb, the monthly rent should be equal to (or greater than) 1% of the investment property’s purchase price (plus any necessary repairs).
Speak To an Expert
Speaking to fellow investors is always a good way to help you avoid making mistakes. However, you need to make sure the investors you are talking to genuinely know the trade inside out. Plenty of investors will share their own experience of buying a rental property as if it is the only experience that matters. Not every investor will have the same experience, which is exactly how property investment myths come about.
We would recommend speaking to a property investment expert who is not going to be biased towards their own personal experience. Thankfully, here at CityRise, we have a team of experts who are always on hand to guide you through buying your first rental property.
When buying your first rental property, make sure you thoroughly conduct your due diligence and maintain realistic expectations. Investing in a rental property will not provide you with a huge paycheck from day one. It is a long-term investment, so it is important you have financially planned enough to comfortably support your property. It is not a great idea to invest in property if you are still paying off any excess debt. Paying down on any debt before you invest will also help you qualify for a loan, as well as creating a buffer in case of any emergency expenses.
Above all, the more preparation you can do the better. If you are looking to invest in a rental property, speak to one of our expert advisors today who will walk you through the process as seamlessly as possible.
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