With interest rates low, and rents rising, many people are looking to invest in property for the first time.
Below, we give some basic tips to help investors find the right property. Above all, please contact a Specialist Letting Agent before putting an offer on a property. Any Estate Agent that does Sales and Lettings could be compromised on the advice they give, or simply not understand lettings. I had one such agent offer me a flat with a yield of 4.5% and try to tell me it was a great buy to let property. Knowing I could get 8% else where for my money it made me worry how much poor advise is given to first time investors.
1.) Beware of the... wrong property
It’s essential that you invest in the right property. The wrong property can easily stay vacant for extended periods and, even when let, may only achieve a low rental return. Furthermore, a wrong property may need extensive refurbishment that may mean little return for quite a time.”
There are a range of problem outcomes if landlords buy the wrong property or the wrong type of property. The sharpest of these is demand-related which can lead to adverse time to let, high turnover of tenants and lengthy void periods etc.
Also buying ‘project properties’ if you have don’t have the time and resources to complete quickly and to a good standard can have the same outcomes. The key thing is to buy appropriate to the local market, staying with mainstream properties that have high local demand. Buying to the taste of the model age range of tenants and not for your own tastes is also important.
If in doubt, Belvoir Lettings Guildford will be able to advise you on the type of properties currently in demand in your area.
Good letting agents know what properties let well in their area and are best placed to advise you on this at the pre-purchase stage, helping you to narrow down your search criteria.
Letting properties is what letting agents do day in and day out, so it is a good investment of your time to talk to them before you arrive at their office with your set of keys and you see their smile fade.
As investing in the right property depends on local demand, you must speak with a local lettings specialist. They will be able to advise what tenants are looking for, what they expect internally and what else makes a property attractive to tenants. We often speak to the landlord for the first time after they have bought the property, and know we could have pointed them in the direction of a better investment for both yield and capital growth.
2.) Beware of the... wrong location
The old adage of ‘location, location, location’ is still true. The best yields are achieved from properties close to good schools, routes into and out of towns and close to train stations etc. However, you should also look at properties in improving areas where yields should increase at some time in the future.
Phrases become clichés when they are true and they should be ignored at your peril; ‘location, location, location’ is one such phrase. Another is also true: ‘you can lead a tenant to a property but you can’t make them take it’ – so a good property in a bad area isn’t worth looking at.
And make sure you carefully research local perception and the surrounding areas of the property you’re considering for investment – just as a prime location is likely to be reflected in the rental return, a property’s proximity to less desirable areas may have an impact on tenant demand too.
The right location will always command the best rental returns, ensure that the properties are always tenanted and that property maintenance is at a minimum.
3.) Beware of the... wrong price
The rental yield is based on a ‘return on investment’ calculation, so the original investment value is critical to achieving the best return. It is worth researching sold prices online, as these are a good benchmark for what values properties can achieve in a chosen area. A property purchased at the wrong price can be disastrous, since your exit plan cannot easily be met and it is likely that you will have to keep the property longer than needed to get the required sales price.
It’s always important to think of an investment property in terms of short-term rental return and long-term capital appreciation.
Rental properties have two income streams. Yield, this is the % the property makes per year and can be directly compared to something like interest in a savings account. If the rental yield of a property is going to be low it is pointless entertaining it as you may as well put your money in a savings account. Capital appreciation in the property is the second stream. If you buy low to start with your appreciation will be greater from the outset.
Although rental yield is often a goal in itself, buying to let is after all an investment strategy – even if you are buying for your son or daughter to move in later, evidence suggests they often don’t. The principal strategy related to any investment is to buy as cheaply as possible and to sell for as much as possible. Although the market varies from area to area it is essentially a buyer’s market. Be dispassionate about the property when you view it, don’t get too attached and don’t throw money at it to secure it.
But, of course, cheaper doesn’t necessarily mean better and you must do your research thoroughly. A bargain isn’t a bargain if the property has fundamental problems or is in need of major renovation. If a property is too cheap then ask yourself why!
4.) Beware of the... wrong tenant
Getting the wrong tenant is every landlord’s worst nightmare. Not paying on time, not paying at all and not respecting the property are among the long list of problems faced if an unreliable tenant moves in.
The honest answer is that the law of averages operates in getting a good or bad tenant as it does in every aspect of life. It is impossible to eliminate risk entirely but it is possible to manage it down and, of course, to put in place a range of safeguards if the worst comes to the worst.
Previous landlord references are sometimes unreliable and you must exercise other forms of due diligence: ideally a credit report, but certainly securing photographic ID and employer references etc.
Using an accredited letting agent to find the tenant for you can help reduce the risk of getting a ‘bad’ tenant.
And, even if you are using an agent, make sure you meet your potential tenant in person too. Good referencing backed up with a subjective gut feeling about the person is the best way to get the right tenant.
5.) Beware of the... wrong agent
A good agent will manage all of the above to ensure that you get the best property and tenants. Belvoir Guildford always approach each property and tenancy as if it were our own experience – would I live in this property? Would I let them live in my property?”
Lettings agents will also market the property on your behalf and will be on hand for any advice you may need.
Once on board letting agents know which advertising channels work, will exercise due diligence on your behalf in terms of tenant referencing and will keep you on the right side of your legal responsibilities as a landlord.
And, when choosing an agent, don’t make your decision based on fees alone.
Just going for the cheapest agent is not the way forward. You may have saved 1% or 2% by going to a cheaper agent but in the long-run you may lose out if they do not place a tenant quickly resulting in costly voids. And, if the tenant they do place is unsuitable, the result may be no rent being paid at all potentially leading to legal fees and lost revenue.”
To find the right agent for you, always look for honesty, integrity, quality of service, the knowledge of the staff and a professional approach. Go online and check your chosen agent’s reviews and ask how many tenants are in arrears as a proportion of their managed properties. Additional membership such as NALS, Safe AGENT and The Property Ombudsman should indicate that robust procedures are in place to avoid nightmare tenancies.
Get it right!
Property
Location
Purchase price
Type of tenant
Monthly rental income
Choice of agent
Maintenance
Insurance
Tenancy agreement
Marketing
