6 essential questions to ask yourself before buying to let

Fri 21 Jul 2017

Buy-to-let remains a popular investment, according to property specialist Leaders, which reports a significant increase in enquiries from people considering buying a home to let.

“Property remains extremely attractive to people looking for an investment that will give them a higher return than savings and more stability than stocks and shares,” says Leaders’ lettings director, Jane Wilkinson. “Market conditions for landlords are excellent across the UK and, if done properly, buy-to-let will provide a good monthly income along with capital appreciation over time.”

So what should you do for the best chance of success?

Leaders highlights six key questions all future landlords should ask themselves before investing:

What do you want to achieve?

Understanding your motivations and goals enables you to make the right decisions from the start. Do you want an investment likely to rise significantly in future value or would you choose a high rental return over capital growth? Both is ideal but this isn’t always possible and choosing one over the other can enable you to maximise your return in the way that best suits your aims.

What’s your budget?

The amount you have to invest, along with how much you are able or willing to borrow, will influence where and what type of property you can buy. No matter your budget, your rental income must more than cover your mortgage payments and other costs to make a profit, and you should have a contingency fund for unexpected problems or void periods.

Where, what and who?

Do you have a particular area, property type or tenant in mind? Each one impacts on the others so identify at least one and go from there. For example, if you want to let to students, a house suitable for sharing in an area with high student demand is the obvious choice. If you’d rather young professional tenants, one or two-bedroom apartments in town or city centres with good transport links and employment are best.

If you don’t mind who rents your property but want it to be nearby, identify which properties are most in demand locally and give the best returns. Alternatively you may prefer to choose the location purely on its potential for house price rises or good yields.

To identify where, what and who is best for you, consult an independent agent with an in-depth knowledge of rental demand nationally and in areas popular with tenants. Expert guidance on demand, supply, house prices, rental values and potential opportunities or threats will ensure you make the right choices.

What will your returns be?

By dividing the annual rent by the value of the property you can calculate a property’s rental yield. Average yields are around 4-6 per cent. To calculate net return you need to take into account all costs such as furnishing, maintenance, mortgage repayments, agent and accountant fees, insurance and tax.

Then there’s potential capital appreciation. There’s no way of knowing exactly what house prices will do in future but historical prices and plans for the area are good indicators of likely growth. Most property experts agree a 6 per cent annual increase on average is likely.

What are your legal obligations?

Landlords must comply with a number of rules, regulations and tax obligations or face severe penalties. These are frequently updated so it’s important to stay informed. A good letting agent will advise on what relates to you and help you stay compliant.

Do it yourself or use an agent?

The answer will depend on how much time and effort you want to devote to your investment and how nearby your property is. Letting agents offer a range of services– from finding and vetting tenants to managing everything for you and guaranteeing the rent. Although they come at a cost, their fees are tax deductible. A good agent can save you time and money while minimising your risk and helping you maximise your returns.

For advice you can trust on all aspects of letting, renting, buying and selling contact your local Leaders branch.