How to find the right buy-to-let property
There’s plenty to consider before you become a buy-to-let landlord
There are decisions in life which can have powerful ramifications down the line. Choosing a spouse. Buying a pet. Taking the plunge and finally purchasing a three quarter length trouser. And when it comes to buy-to-let, finding the right property can mean the difference between a successful investment and a major financial mistake. The right investment will pay an income and grow in value, while the wrong one risks lying empty, costing you money and causing you stress.
Taking the time to find the right house or flat is an essential part of investing in a buy-to-let property. The more attention you pay to this part, the easier your buy-to-let experience will be.
Bear in mind that although other landlords are technically your competition, they are actually often quite a sociable bunch. Landlord associations and organisations like The Property Hub organise local meet-ups and these can be great places to meet other investors and learn from their experiences.
To help get you started, here are my suggestions for finding the right buy-to-let property.
Look at the return
The best and most expensive homes do not always make the best buy-to-lets.
The ideal for landlords are flats and houses that are cheap to buy and mortgage, but which command comparatively good rents. Such buy-to-let properties certainly exist but they can take some hunting down.
And do remember that a very pricey property may have a great-looking return but you need to consider any void periods. If your buy-to-let property is empty and you’re having to service a large mortgage with no rent coming in then that can be a painful experience.
Follow up leads in Leeds
A lot of landlords choose to invest in a buy-to-let property close to where they themselves live and that is understandable. It means they are on hand if there is a problem and they are able to vet tenants without the help of an agency.
However, if you are in a position to look at properties across the UK then you can target areas with high demand and yields. Yields are calculated from the annual income you receive in rent from a buy-to-let property, divided by the purchase price of the property, however, if you want a more accurate yield calculation then you should subtract your mortgage payments, for the year, from your rental income.
Research from the investment market place Property Partner has shown that the north of England offers particularly good efficiency for landlords. Analysing average income, average house prices and average rents in each area, it found that Leeds gave the highest yield at 6.92 percent typically. Gateshead, Liverpool, Stoke-on-Trent, Rochdale and Newcastle all offered comparatively high yields too.
Meanwhile Cambridge offered a typical yield of just 2.51 percent, which the researchers said was because of high demand from owner occupiers forcing house prices up.
That’s not to say that you should only buy in Leeds. But it does show that you shouldn’t limit yourself to your local area but also question whether it’s worth looking slightly further afield.
You can calculate the yield of a property using the Rental Yield Calculator on the ‘This is Money’ website.
Know your customers
It’s important to have a clear idea of the type of tenant you are hoping to attract as this will be key in finding the right buy-to-let property.
For example, if you want to attract professionals then you should probably steer clear of a noisy studenty area. If your target tenants are families then local parks and amenities will be a good selling point. If you want students then you obviously need a property in an affordable location, close to the campus, or even a flat within a purpose-built block. If you’d ideally like to attract circus clowns, you may want to buy a place near a glitter shop, with parking for cars whose wheels fall off when you close the doors.
In short, you won’t know which is the right rental property or where it will be found until you know what kind of tenants you want.
Become an expert on your area
So, you’ve decided you want students, families or red-nosed circus professionals. That should help you narrow down a suitable location but then it’s a good idea to get to know the local area yourself.
What are the nearby schools like? Is there a decent supermarket within walking distance? Are the bus routes good? Are there convenient spots to pretend you’re walking into a strong wind with an invisible dog?
If you pay attention to finding the right buy-to-let property in the best possible location then you’ll have greater demand from would-be tenants. You’ll also get tenants who want to stick around for longer, meaning you cut the risk of void periods.
The internet is a great resource for researching locations and the more you know, the more you will have to say when showing tenants around so it’s a good selling point too.
If you have the confidence and the capital then you might want to consider looking at buy-to-let properties that need work.
Renovating and updating a home can be a great way to cut your stamp duty costs and add some quick value to your investment, which also gives you a greater margin of safety.
Just make sure that the price you pay adequately reflects the work that’s needed – and that you can afford for the home to lie empty while you finish.
And that’s it: I wish you all the best in your buy-to-letting.
Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.