The saying is so tired that people ignore it these days, but in fact the first three rules of property investing are still as true as ever. They are Location, Location and Location. This is especially the case when you are looking for a buy to let property investment. Get this right and buy the right property at the right price and you will have tenants beating a path to your door. But making the wrong decision here can ruin any hope you have of making any money if the price of your property falls or you are stuck with an empty flat or house while the bills mount up.
Don’t follow the buy to let herd
The biggest mistake that most buy to let property investors make is in following the herd. In the boom years up to 2007 developers threw up thousands of small city centre apartments in areas where there was little demand. These weren’t aimed at the final market of home buyers or tenants but were deigned and built to be attractive to aspirant landlords. Walk through areas such as Woolwich in London or parts of Leeds or Birmingham at night and count how many of the flats in spanking new apartment buildings have any lights on. Don’t be surprised if you feel as if you’ve stepped onto the film set of a science fiction thriller in which all the people have disappeared overnight. In fact things are so bad in some areas that many of the new buildings are already starting to look shabby because there are too few occupants paying rent for the buildings to be cleaned and maintained.
These sorts of properties were actively sold at “investment workshops”, seminars and property presentations. Yet the only people to have made any money were the estate agents running the investment seminars and the developers who put the buildings up.
Think in terms of your target market
Are you looking to attract families with children for long-term rents, university students, single professionals working in the city center? Until you have an idea of your ideal tenant you shouldn’t even be thinking of looking at properties. Do your research first and decide on the sorts of tenants you want. And don’t be too hasty in ruling out large segments of the market. Young professionals might be seen as ideal but they will often want to live in areas with good transport, good nightlife and proximity to the city center. Buying an apartment that meets all these criteria will not be cheap and could lead to a lower rental yield (for an explanation of this please see the article on the economics of buy to let). And professionals don’t always stay put. Students, on the other hand, might seem to many to be the worst possible tenants because they will throw wild parties and destroy a property. Yet students are less fussy about where they are and have somewhat lower standards for what the neighbourhood should look like. They also don’t demand the highest quality of furniture. If you can find a cheap enough property close to a university that is still safe and habitable and wouldn’t take much investment to make cozy, then you might find a better investment return and higher yield than through buying a more expensive place.
Families on the other hand will want to be near good schools and may be quite stable as tenants for many years. Especially if you are able to buy within the catchment area of a school that is particularly sought after.
Research rents and property prices thoroughly before buying
These days there is a wealth of information out there on the Internet that will tell you want rents are in a specific area and what houses in the street or area have sold for in recent months. Try to figure out the average rents for a particular area for the size of property you are thinking of. You can do this by looking on popular estate agents sites to get a sense of going rents. It is often useful to work this back to a price per square foot so that you can compare similar properties that are slightly larger or smaller than one another (although in general the market looks at the number of rooms, not the floor area).
Call a couple of local estate agents in the area posing as a prospective tenant to ask what is available. Tell them you are only moving to the area in a few months and ask them when you should start seeing properties. That can give you an idea of how quickly properties turn over between tenants. Call a few others and be upfront with them about what you are looking for. They will also give an idea of rents in the area. If what they tell you stacks up you may want to see what properties they have for sale. If what they say doesn’t match with what you already know then scratch them off your list of potential agents that you will deal with in future. You don’t really want to be buying from someone who is already misleading you.
Compare rental yields of different buy to let properties and areas
Once you have an idea of prices and rents then you can start calculating yields for each buy to let property you are considering as well as averages for areas so that you can compare one neighbourhood against another. The results may surprise you when, for instance, comparing student buy to let properties against buy to let family homes.
If one property is yielding much more than another look at it closely but ask why. Is the seller discounting it because they are in a hurry to sell? Or is the property going cheap because it will need a lot of maintenance or structural work? If the former, put it on your list of potential properties to buy. If the latter get a quick estimate (you’ll need a more thorough survey later anyway) of what it might cost, figure that into the price and then recalculate the yield. If it is still above average then add it to your list. Once you have a short list of properties go back to meet with some letting agents (as opposed to the ones trying to sell you a property) and ask their opinions. They’ll often be helpful as you may be a client in the future. A reliable and trustworthy rental agent may make your best advisor since they will know the rental market inside out and want to establish a long-term relationship with you so it is in their interest to help you find the right property.
Get structural survey of your shortlisted properties
Before taking another step make sure you have a proper high quality structural survey done. The few hundred pounds that a good survey will cost now could save you tens of thousands. In particular you want to look out for issues such as subsidence that make insuring a property expensive. Also be sure it isn’t in a flood zone. Check this with the environment agency and some insurers. The last thing you want is to buy a property and then find it can’t be insured or can only be insured at great expense.
All of this may seem an inordinate amount of work just to find a property. Yet hard work, market knowledge and proper research are the secrets of successful buy to let property investors.