Buy-to-let: The essential advice property investors need to consider
Buy to let properties are still seen as a good investment opportunity, especially in this era of low interest rates and volatility in the stock market. If you're considering entering the market, this guide provides you with some essential information.
Research the market Before you start looking at properties, make sure you know what you're getting into. Look at all the risks involved. Property is a long term investment, so you need to consider whether you can afford to have money tied up for this long. If you might need quick access to your money, then this isn't the right investment for you. You also need to think about what happens if house prices fall further and whether you'll still be able to afford the property. Speak to other investors and see what their experiences are.
Choose the right area When you're researching areas, it's essential that you think about who your potential tenants are and where they want to live. This isn't going to be your family home, so you need to forget about your own preferences. Look at the local transport links, schools and amenities and how these factor into the lives of your tenants.
Check the finances Before you commit to an investment, you need to ensure that it's affordable. Look at the price of local properties and the possible rental income to see if the figures add up. A good guide for buy to let investors is for the rent to cover 125% of the mortgage, as this provides a buffer if the property is left empty at some stage. Mortgage deals for new property investors will require larger deposits (usually around 25% to get the best deals) and arrangement fees can cost more.
Research mortgage deals Make sure you look at all the mortgage products available - don't just opt for the first one you find. There are organisations online that list details of the best buy to let deals. It's also worth considering using a specialist broker who can look across the whole market and might have access to exclusive products.
Your tenants You always need to keep your potential tenants at the forefront of your mind to ensure that it's a property they want to live in. Decide on who you're aiming for. For example families will be looking for something very different from students or single people. Deciding on your target market will help you to focus on exactly what type of property you're looking for. The best types of tenants are those who want to stay for a considerable period of time and make the property their home. However, you also need to think about what will happen if you have unreliable tenants and how the tenants eviction process works.
Negotiate on price As a buy to let investor you're in an excellent position to negotiate on the price of the property. With no onward chain there's less potential for the sale to fall through and you might be able to move faster. When you find the right property, make a low offer to start with and don't be tempted to pay too much.
Consider the negatives When you're entering the property investment market, don't just think about the positives. Consider the negative aspects, including whether your investment will still work if prices fall – or demand drops. You need to think about what will happen if the property is empty for long periods, you need to start a tenants eviction process or the property needs essential repairs.
How involved will you be? Will you want an agent to manage the property or will you deal with everything yourself? An agent will charge a management fee, but they'll take care of advertising, viewing and organising repairs. They will also be dealing with tenants for you - which can be a big plus. If you decide to go with an agent, research all the options and the different fees.
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