Buying a property to rent out is a fantastic investment that can help you see great returns. Before you buy a property though, there are lots of aspects to consider to make sure you maximise the potential yield and purchase the correct property that suits your needs and intentions as a landlord.
This guide can give you some handy tips of things to consider when becoming a landlord
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Budget
Investing in a buy-to-let property requires you to put down a significant deposit. And unless you are in the financial position to go down a different route, it will also require you to take out a mortgage. So create a cost assessment and find out how much you can truly afford.
Remember that buy-to-let mortgages are more expensive and they normally require a minimum deposit of 25%. Don’t forget to factor in arrangement fees as well.
Then calculate the rent that you’re planning on earning from the property, financial institutions normally want this to cover at least 125% of your mortgage payments but even up to 145% at times.
Remember to also set money aside for maintenance and periods of time when the property might be empty and you will have to make these payments yourself.
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What makes a good investment?
This depends on your own personal reasoning.
If you’re focused on long term growth, or improving a property to sell in future,you’ll need to buy in an area with growth potential.
Chances are you want a passive stream of income while you own the property so then you will need to choose a property with the highest potential rental yield.
You need to assess your goals and then each property that you are viewing and decide how well they correlatev
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Rental Yield
Rental yield is your return, or how much you earn from a property investment.
They are calculated as a percentage of the value of your property.
Generally, you want to have a rental yield of 5%. This isn’t always achievable due to the area and its rental costs like London, whereas other investment hotspots have shown a 7% rental yield could be possible.
Example; rental income of £10,000 per year on a property that cost you £200,000 gives you a 5% yield.
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Tenants
Consider who you want to rent to, families, students or young professionals?
Think from their perspective and imagine what their needs and wants would be.
Families might want a garden,students might want to be close to entertainment areas and young professionals might want a very modern space.
Whoever you rent to remember the legal requirements such as a lease and placing the tenants’ deposit in a deposit protection scheme
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Type of property
The right property will most likely be different from the property you would choose for yourself. You generally want a property with a broad appeal so that you can let quickly
Do you want to buy a house or flat? What type of tenant is attracted to either of these?
Do you want a new property or old? Consider that old properties require much more maintenance but will have much more character but might be harder to let.
Layout is important. Does it have large communal spaces that families and students could make use of? Or are there many separate rooms that might deter families?
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Where To Start
Decide on a few areas of where you might want to buy. You might want to stay closer to home since you know the area well, or if you’re going to have an agent manage the property for you then you can look further away in areas that might be more lucrative.
Look for particular roads to by property on that are near the types of amenities that would attract your ideal tenant, like roads near a very good school if you’re attracting families, or general areas that have a high average price or is up and coming or that other areas are expanding into
