For serial ‘buy-to-letters’ and prospective investors alike, there’s a great deal of buzz at the moment about pinpointing, precisely, the best time to buy. The market appears to paint a rosy picture, with rents at an all time high and 40,000 mortgages advanced to buy-to-let investors in the period April – June 2013 (the highest levels of any quarter since 2008).
However, ‘when’ shouldn’t be the only consideration when buying an investment property; as buy-to-let dreams can easily go sour.
Who is your ideal tenant?
The first thing to consider as a first time buy-to-let investor, is who you want as your tenant. This decision will naturally be based upon a number of different factors including your budget, whether you want to be a hands-on landlord and if you choose to invest locally or further afield.
For example: are you happy with high rent/high turnover tenants? If so, a student house may suit your requirements. Do you want the stability of longer term tenants, and will you consider accepting a slightly lower rent? If so, you may wish to consider a property in a town or village location near to good schools that will attract families.
Location, location, location…
Once you’ve thought about your ideal tenant, you need to research location. It’s a cliché, but it really is key – and that’s especially true for rental properties. That said, once you know what sort of tenant you want, it shouldn’t be too difficult to find the right location.
Don’t overlook the obvious things though. Students will probably be more interested in location (near to their university, or if there’s a dedicated ‘student’ area that’s a couple of miles from the university – near to good transport links) than interior design.
Families, on the other hand, may want a garden as well as space to park. They will probably also expect good central heating, new carpets and a nice bathroom.
Of course, cosmetic details can be changed, new carpets laid, and bathrooms installed – but these things all cost money. Which leads me nicely to…
Budget
You should always have a budget in mind, which includes a slush fund for unexpected extras. These can range from a broken boiler, paying for a gardener if the property is empty for a period of time, through to redecoration between tenants and even replacing windows and doors.
In addition, you’ll need to think about the cost of legal fees, searches and insurances. Your mortgage provider may require a structural survey, and last, but by no means least you could be liable for stamp duty, payable on properties over £125,000 on a sliding scale of 1 – 7%.
A word of warning
Although investment properties continue to offer an attractive investment opportunity, it’s important to ensure that you do your research properly, and take advice if you’re a first time investor.
Lord Lamont, the former Conservative chancellor recently raised concerns that the buy-to-let market is heading for collapse. Of course, the danger arises for investors who over-invest whilst interest rates are low, and who then go on to experience cash flow problems when interest rates inevitably rise.
Cash is king
The above point leads me nicely to my final word of warning: it’s absolutely vital that you have enough cash to meet your mortgage payments each month. Ideally your tenant will pay this for you, but you should still budget for months in which you have no tenant, or worse, if you find yourself with a tenant that can’t or won’t pay the rent.
Further, as most buy-to-let mortgages are provided on an interest-only basis, it’s also imperative that you save separately to meet the capital repayments on the mortgage at the end of the term.
In conclusion, buy-to-let properties can provide impressive yields, as well as longer term capital returns. However, it’s important to understand the potential pitfalls of investment, as well as the opportunities.
For more information and advice on buy-to-let property investments, or selling and buying residential property, please contact Gisella Alberici on 0161 0281, or by email: gisella.alberici@ratiolaw.co.uk.