Investing in Buy-to-Let – top tips
Top Tips for Investing in Buy-to-Let
Investing in Buy-to-let can be a fraught business for the unwary but equally with careful planning and diligent research it should also prove to be a very valuable investment. In this article we set out some of our top tips for investing in a buy-to-let property – whether it is a one off or as part of a major portfolio of properties.
1. Motives for Buy-to-Let investing
At Source Property Investments we meet and help a wide variety of people who are considering investing in Buy-to-Let properties ranging from first time investors to experienced campaigners seeking to add to an existing portfolio.
Many people become landlords almost by accident – inheriting a property or letting out a holiday home during the off season for example. Others may have a windfall pot of money to invest (maybe a significant bonus or a lucky win on the lottery) whilst for some investing in property is part of an overall retirement pension plan or investment portfolio.
It is essential that each individual investor fully identifies why they are investing and how they expect to realise their asset in the long term.
Buy-to-let property investment is relatively inelastic – the property is the asset and it may not always be possible to realise that asset quickly or economically. Selling in a “slow” market can take a long time or mean a significant discount in price so careful planning to avoid a financial disappointment is essential.
2. Unless you are an expert – stick to areas you know!
If you are a first time buyer it is normally sensible to buy in an area that you know well. This doesn’t always mean that you have to buy only close to where you live – you may know a holiday area very well or have relatives or friends who have lived somewhere for many years and who you can trust to give you reliable information.
If you are planning to maintain the property yourself and to find your own tenants it obviously makes sense to buy and let a property which is in a reasonable travelling distance. If you choose to invest in a property which is a long way from home it is probably sensible to appoint an agent to manage the property and tenant find on your behalf.
3. Understanding value
You won’t know if you are investing at too high a price if you don’t research the rental/sales market thoroughly.
Are you seeking rental return or capital growth?
Of course it is the aim of every investor to achieve both but deciding at the outset which is the primary requirement is vital in ensuring that you buy the right type of property in the right location to maximise your financial return.
Buying primarily for capital growth generally carries a higher risk because there are so many variables which can influence property prices and many of these will be out of your individual control – i.e. mortgage rates; general economic influences such as a recession, political decisions (such as Brexit), local situations such as a planned development being cancelled or moved to a different location etc.
Buying primarily for rental return is normally less risky because it is easier to forecast whether a specific location is likely to continue to be a popular area for rental demand (near to a hospital or railway station for example) and although outside influences can impact on the amount of return the impact is likely to be more manageable.
4. Know your budget
As part of the planning process and certainly before you commit any expenditure it is essential that you know your budget and fully understand all the various costs involved.
If you need to finance your investment with a mortgage find out first what deposit you will require; the maximum amount of mortgage you are able to borrow and what the repayment costs will be – a good mortgage broker will be a significant help in sifting through the options and finding the best deal.
Also don’t overlook the other costs involved.
Costs breakdown into set up – stamp duty, legal and financing fees, estate agents fees etc. and ongoing– maintaining the property; cost of finding tenants; agents fees; tax charges; insurance, mortgage repayment costs etc.
Carefully work out whether the estimated rental return will cover the costs allowing for possible increases in mortgage rates; dormant periods (when no rent is received because of a time lag between one tenant leaving and another starting); repair costs etc.
5. If in doubt…ask for Help!
Expert help and guidance in Buy-to-Let investment is available from many sources so it is sensible to talk to the experts before committing.
At Source Investments we are happy to provide an initial consultancy meeting completely free of charge and without any strings attached.
If you decide to go forward with us we provide a private and personal service that gives expert and impartial advice and also stay with you through every step of your investment journey. We act solely on your behalf to help you secure the best property in the best location at the best price to give you the biggest advantage in this competitive market.