Buying a house can lead you into a complicated and confusing maze if you don’t know what you’re doing. It can also leave you seriously out of pocket if your purpose is to buy for investment. Here are a few basic principles to bear in mind at the beginning of your buy-to-let property quest.
Buying a house can lead you into a complicated and confusing maze if you don’t know what you’re doing. It can also leave you seriously out of pocket if your purpose is to buy for investment. Here are a few basic principles to bear in mind at the beginning of your buy-to-let property quest.
1. Know your market. Who will you rent to, where do they live, what’s their lifestyle. Do they need transport or commuter links, do they need parking for several cars. Is their lifestyle quiet or busy? What’s their income and how do they spend it? What’s their age and their family status? These and dozens of other questions need answering before you can narrow down the type of property that will give the best return for your type of investment. Understanding who your ideal tenant is prevents you wasting time chasing unsuitable properties.
2. Know your seller. Buying from motivated sellers often gives a sharper negotiating angle. Whether you’re investing in property as a business prospect or as a long-term home for yourself, you need to buy at the lowest price possible. For investors, the best price is below the standard market rate.
3. Get your finances in order. In a competitive market you can’t afford to leave organising your borrowing until the last minute. Having financial evidence you can present to the seller or estate agent, puts you in a stronger position as a serious buyer who can complete quickly. Since it can take time to organise borrowing, make this your priority so you have an offer in principle. Once you’ve found the ideal house, you can attend to the details in particular.
4. Make sure your costs are covered. The rental you can achieve from any property should more than cover the monthly ownership expenses, preferably with excess so you can comfortably cover voids. Rental amounts vary from area to area, so you need to weigh up the cost of borrowing against the income potential and make sure it stacks up in your favour. Don’t forget to factor in initial renovation costs, or any work the property needs to meet current landlord regulations, plus your insurance costs. If you’re borrowing, plan on needing to cover your mortgage repayments plus an additional 25%. If your rent covers at least 125% of the mortgage, you’ll probably be comfortable, with a property that makes you money rather than costing you each month. Working on this calculation gives you a quick way to estimate whether it’s worth making an offer.
5. Choose location carefully. As well as making sure the property you’re interested in buying is structurally sound, the location is vital. For a successful buy-to-let the ideal area will have a high rental demand, and this can change from street to street in the same area. While you’re looking at location, also bear in mind how easy it would be to sell should you so decide. Whilst low prices are attractive, they’re not always the best for investment purposes.
A bonus tip is to take your time and avoid emotional decisions, thinking with your head more than your heart. Approached logically and systematically the property market is still profitable and the future looks rosy. With a bit of luck and careful planning, you can join the many investors with profitable property portfolios.
Drew writes for Black Brick, buying agents based in London. For more property information see their monthly Market Update.
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