‘Buy to Let’ can be a fantastic investment and offer some really good returns which can be difficult to achieve elsewhere. The key to being successful is to make sure you buy the right property in the first place. Below is our advice on the 5 essential things to consider when deciding which property to invest in.
You want to make sure that you buy a property that is likely to increase in value over the time that you own it. Although nothing is guaranteed property has proven to be a good investment over a period of time and you ideally want to find something that will at least track the market and ideally outperform it. Nice homes in popular areas tend to increase the most whereas ex-council properties in less desirable areas are likely to not have the same increase in value. It isn’t to say that one type of property is better than another as it will depend on your individual strategy and what you are looking to achieve but you want to include the potential capital appreciation achievable as part of your investment decision. Another thing to consider when looking at which area to buy in is any regeneration plans, transport improvements or new jobs being created as this will of course also help to boost the property values within the area.
An empty property means no rent so you need to be confident that there will be good demand from tenants for the property. Speak to local letting agents to get their advice on what types of property let quickest. Demand for certain types of property such as student house shares is very seasonal and larger executive style homes will typically also take longer to rent. Knowing how rentable the property is allows you to factor the anticipated void periods into your projections which will give you more accurate figures on which to base your decision.
This can often be forgotten but the on-going costs will differ quite significantly for different types of property. An apartment with a high service charge will obviously have higher costs than would be expected with a modern house. Older properties will generally have higher maintenance costs than newer ones. Looking at the age of the boiler, quality of the windows, general decor and condition of the roof will give you a good indication of how much money you may need to spend on maintenance over the first few years of ownership.
Have a think about the type of market you are aiming for and whether or not the property you are considering will appeal to them. Clearly a two bedroom terrace will attract different tenants to a four bedroom detached. It doesn’t matter so much which type of tenant market you are looking to market to as long as you make sure that you choose the right type of property for them.
The monthly return that you expect to make on the rent is one of the most important things to consider in your decision to purchase a property or not. An easy way to compare the returns offered by different properties is to calculate the rental yield using the formula below;
Annual Rent Divided by Purchase Price Multiplied by 100
This gives you the gross yield and in the Derby market you would really want to see a figure of at least 5% to make the property a good investment. Carry out your own research into what you think the market rent for the property would be but also seek the opinions of local Letting Agents and ideally someone other than the agent that is trying to sell the property to make sure that you get an impartial opinion!
Click here to read 5 Things To Consider When Selecting A Tenant.