Despite the recent tax crackdown, buy-to-let property is still a very profitable and attractive investment - especially with the stock markets so up and down thanks to brexit.
Buy-to-let property investment still makes sense thanks to greater demand from tenants, rising rents and interest rate rises seemingly a long way off. However, it has become more vital than ever to ensure you do things properly to ensure you get the biggest return possible from your investment. Here are our top tips on what to look for when investing in rental property.
1. Choose the right area for the rental market
This does not mean the cheapest area to buy or the place where prices are likely to rise the most. Look for areas where people would like to live. Put yourself in a renter’s shoes. Is the location good for commuters? Does it have good schools? Do students want to live there? Who does it appeal to? Are they renters?
If it is an area you know well use your local knowledge to help with this judgement. If not speak to experts or local people to ensure you fully understand the area you are buying in.
2. Do your maths - look for rents that cover ALL your costs
What are the typical rents in the area? Lenders usually want rent to cover 125% of the mortgage repayments and deposits are getting larger to cover for the tax crackdown which can eat into profits.
Then ensure you factor in other costs such as fees, maintenance and a fund to cover you if the property is empty or rates rise. If you can get a rental return much larger than the mortgage payments, then you can build up a good emergency fund, and then start investing any extra cash.
3. Look further afield
Your town may not be the best investment. Look beyond your own backyard and find the cities or towns that offer you an affordable purchase price, with good rental yields where there is a strong demand for rental properties.
Places with good commuting links, that are popular with familes or have a sizeable university are also good such as Liverpool or Manchester or their surrounding towns.
4. Avoid the fixer-upper
Many people will advise you to look for that property that needs a lot of work but you can get for a bargain. Unless you are an experienced developer, or skilled at large home improvements, or have lots of contacts who can do the work cheaply and quickly for you, this is probably not a good idea.
You will end up spending too much money and taking too much time to renovate. This will soon eat into any profits you could have made and also the house will be empty and costing you money while the work is being done. Do your maths and stick with a home that that you can rent quickly with little effort.
5. Consider a fully-managed investment
Being a landlord can be hard work. Not only have you got to factor in all the costs but you also need to add the costs of your time and energy to deal with the management of the property. You can make more money if you do everything yourself but in terms of time costs it can often be more profitable and less stressful to hand over the day to day running of the property, as well as all legal and tenancy issues to a management company.
Final thoughts
Property investment can be very rewarding but also very tough – it pays to have an expert by your side from day one. Speak to us as Nicholson Capital about our buy-to-let investment properties and our fully managed investments and how we can build an investment strategy that works for you.