Choosing the right property to buy is one of your most important tasks as a buy-to-let investor or professional landlord. A poor choice of property can land you with large void periods and insufficient rental income – but the right decision can help to guarantee success in the buy-to-let market.
So what should you consider when choosing a buy-to-let property?
As the cliché would have it: location, location, location. There are several elements of this that you should consider.
First of all, what sort of area is the property in? Is it close to services and infrastructure like a train station? Is it located in a commuter town or city centre? If not, are its surroundings enough to draw in tenants?
You should also consider its location in relation to your own home. Unless you are entrusting the management of the property entirely to an agent, you will have to deal with issues on-site. How easy is it for you to get to the property, and how quickly can you do so?
You should also research the state of the market in the area. What is the average rent being achieved for similar properties? What are the average void periods? These factors will have a significant impact on your financial success.
2. Property type
You may already know whether you want to buy a house or a flat. If not, consider the property type in relation to the area. Houses are likely to be most popular in suburban areas where a large proportion of the population have families.
Similarly, houses are often popular in university towns where tenants are likely to want to share with a large number of others. On the other hand, flats are generally most popular in city centres and other built-up areas.
When making the decision, consider that houses often require more upkeep than flats, especially as they are usually freehold where flats are often leasehold. Gardens and other outdoor spaces also add to the cost.
3. Potential tenants
The type of tenants available to you will be determined, to a great extent, by the area you choose. If you are buying in a university town, for example, you might not have any difficulty filling your property with student tenants – but you may have to make do with slightly lower rents and potentially less reliable tenants.
On the other hand, commuter towns and other wealthy areas may see higher rents, but prospective tenants are likely to be pickier. You may have to take extra steps to ensure your property stands out from the crowd in these areas.
4. Proximity to agents
Unless you want to take on the work associated with finding tenants and managing the property yourself, you will need to build up a relationship with a reputable lettings agent. You need to be safe in the knowledge that your agent or property manager is close to the property and able to deal with issues promptly as they arise.
However, you should not settle for an agent simply because they are close to a potential property. It is vital that you find an agent with which you are happy to do business; they will be the link between you and the tenant – who is, after all, your customer. If there is a paucity of good agents in the area, you may wish to consider looking elsewhere.
5. Property value
Cost is likely to be a defining factor for many investors, but it has become even more important with the recent ending of the stamp duty holiday.
The value of the property will determine the size of your buy-to-let mortgage repayments. But it is not always the case that a more expensive property will command higher rents, so you must find a balance between cost and the average rents achieved in the area.
The stamp duty holiday has also had a significant impact on investors’ buying patterns. The temporary holiday, which meant that properties with a sale value of £175,000 or less avoided the tax, ended on 1 January. You should make sure that you factor stamp duty into your calculations.
6. Renovation costs
Finally, you should consider the amount of work that you are likely to have to put into the property. While there is nothing wrong with picking up a bargain with the intention of doing it up, you should think about how long it will take you to do the work. If it will take you away from other, profit-generating tasks, you may wish to consider either having someone else do it for you, or choosing another property.
Time is also a consideration. The longer you spend renovating a property the longer you will be without any rental income.
Success in the buy-to-let market relies on a methodical approach, proper forethought, and a good amount of luck. Choosing the ideal property is perhaps the single most important step in the process – so you must make sure that you make the right decision.