So you’re interested in a buy to let investment opportunity? Before taking the (financial) plunge there are certain questions to consider. Read on to find out our 5 top questions to think about before choosing a buy to let property.
1) What location and area are you looking to invest into?
Location will inevitably play a huge role in how successful a buy to let venture will be and so should be carefully considered when exploring different property investment ventures. Location highlights, proximity and accessibility to the big UK cities, schooling districts, and transport links are all things to consider when buying your own home so should absolutely be considered when buying a property to let. Its also worth noting that the kind of property you buy will attract a specific kind of tenant; For example a 3 bedroom property, close to a good school and with its own outdoor space, will be much more likely to attract a long term single lease than multiple short term leases. Equally a 1 bed inner-town house or flat, close to the town centre with limited outdoor space will be more likely to attract a different kind of occupant.
2) Who is your target tenant?
A mistake that many start out buy to let investors make is to buy property that they themselves would like to live in, rather than buying a property that tenants would want to live in. By considering your ‘market audience’ before making any big decisions or renovations you can save on costly design or build mistakes that can limit your tenant opportunities or indeed attract the ‘wrong’ type of tenant.
3) Is an overhaul or renovation going to pay itself off?
An accurate and honest assessment of maintenance costs and building costs at the beginning of a project is incredibly important when considering the true viability of an investment opportunity – particularly when its comes to brick and mortar investments! A cheaper home may return an initial capital gain in the beginning but later go on to cost much more than its worth! It is worth remembering the “unseen” costs that often come with renovation projects and factoring these costs into the initial evaluation before any documents are signed. Talking to other landlords of similar style properties may be an invaluable resource and be an indicator of the true costs associated with this area of investment.
4) Do the maths – What is a reasonable expectation of your annual rental yield and will it be worth it?
A rental yield calculation will give you an approximate amount of return that you can expect on a property purely from rent. The calculation will result in a percentage figure and it is from this that you can assess whether or not the investment is of worth. Different investors consider different rental yields as valuable but for most it is around a 8%. A rental yield underneath this figure could result in a cash flow that is unable to support the needs of the property thus rendering the investment as unsuccessful.
5) What’s in it for you?
Buy to let can be an incredibly exciting and valuable investment sector but it takes consideration of many different factors to ensure its success. Owning a buy to let property is often a longer-term investment than many think and shouldn’t be relied upon as a get rich quick scheme. Knowing your reasons for entering this area of investment will be as important as knowing an effective exit strategy if anything did go wrong and will ultimately ensure your success along the way.