Tips for finding the perfect buy-to-let investment
03-11-2015
By Derby Telegraph
Do your homework before investing in a property to rent, then you can hand over the keys with confidence.
HOUSE-hunting for that perfect buy-to-let investment? The experts at Belvoir reveal five things to consider before you commit...
PROPERTY HOT SPOTS
One of the most valuable keys to unlocking the door to a good property investment is buying in the right location. Prime postcodes and sought after addresses sell properties – and help let them too.
"Location is important for various reasons," says Mike Stuttard, of Belvoir.
"As well as assessing the area for achievable rental yield, plus potential for capital appreciation, another important consideration when looking at location is what facilities the property will be near."
Crime rates should also be considered.
MARKET MATTERS
Ensure your investment choice is suitable for the target market. You're not going to be living there, they are, so choose a property with their needs in mind not your own.
"Thinking about your target market is essential when investing in a buy-to-let property," says Belvoir's Adam Rastall.
Mike adds: "It is also important to consider the quality of the property and the types of tenants that it will attract from a dilapidation point of view.
"If the property is not looked after because of the type of tenant that is attracted, resulting in high refurbishment costs on a regular basis, then the overall return on the investment will be affected.
"Keeping void periods to a minimum is also important."
DO THE MATHS
Even the best properties in prime locations are not going to make good buy-to-let investments unless the figures add up.
Says Mike: "I advise my landlords that it is also important to look for a property in a location with a reasonable capital appreciation. When taking the rental value as well as capital appreciation into account, the overall return on the investment can be seen.
"If a landlord is looking at a short to medium term investment (say up to five years), they will probably need to look at properties in an area with a higher capital appreciation, whereby their return on investment will be primarily the profit achieved on the sale price.
"Landlords looking for a more long-term project (ie, the property being used as a pension) should look for a good mix of rental yield plus capital growth."
Do you need a mortgage? If so, how much? Will the rental return cover monthly payments... and what if these go up? Plus, do you have the capital available for renovation and repairs, and a contingency fund for ongoing maintenance?
KNOW YOUR EXITS
A clear and comprehensive exit strategy should always be part of the planning process before committing to an investment property.
Belvoir's Charlotte Baker says: "You can't possibly assess whether it's going to perform well against other investment options unless you know what your short-term and long-term goals are.
"Your intentions should be clear in order for you to get the most out of your investment – if you don't know what your exit plan is from the very beginning then you can't choose wisely.
"You need to know how long you're intending to keep the property and if it will be able to achieve the right return given these timescales – through rental return, capital appreciation or both. Have a clear exit plan from the outset and, if your personal circumstances change, then re-evaluate your property portfolio to make sure it's still meeting with your investment requirements."
ASK THE EXPERTS
A good letting agent will be able to advise you and steer you towards the best investment for you.
"The best way to identify your target market and the best investment available would be to get advice from several different letting agents in the local area," says Adam.