2015 has hit our calendars and it’s time to think about plans for the year ahead. Are you one of the many people up and down the country who are considering entering the buy-to-let market? If so, here are our top 5 tips to get you under way.
1. What’s your motivation?
- First things first, if you’re looking to invest in property, you need to ask yourself why. The Private Rental Sector is growing all the time and becoming increasingly competitive. It’s not an industry that you can dip your toe into and expect to see a fast return.
- Many investors currently entering the market do so in order to sure up a pension fund, provide a secondary income stream or fund a child’s education. Whatever your motivation, make sure your reasons for entering the market are likely to be long-term and sustainable.
2. Do your research
- It goes without saying that to be successful in the property market, you need to have a knowledge of the market. That doesn’t mean you have to be an expert in every facet of property investment, but you shouldn’t enter the market blind.
- So where do you start? Begin by looking around your local area. For new landlords, the generally accepted wisdom is that it’s best to buy a property close to where you live. There are several advantages to this practice:
- Firstly, you’ll already have an understanding of the demand for housing in your area
- You can spend time building face-to-face relationships with local agents and businesses who’ll be able to help you once you’re up and running
- Once you’ve found tenants, you’ll also be able to respond quickly to any matters which require your attention, such as property maintenance.
- There are also pension changes on the horizon which could have an impact on your decision to invest. From April, pension savers aged 55 and over will be able to take out their entire pension fund in one lump sum.
- Many experts are predicting that this will lead more people to invest their money into residential property. No one is quite sure what the final implications of these changes will be, but it’s likely that an influx of capital will lead to a spike in property prices.
3. Identify the demand, then become the supplier
- The number of people renting is on the rise, but don’t assume that tenants will be easy to come by if you simply buy a property for people to rent.
- Use your local knowledge to identify the property hotspots and speak to local estate and letting agents to gain a more in-depth understanding. Ask about average rents in the area, as well as how long it normally takes to find tenants for a property. Click here for more information on speaking to agents.
4. Be prepared
- If you’re a homeowner, you’ll already be familiar with many of the stages of buying a property. However, whilst the process may be similar, the numbers involved are not.
- Once you’ve identified the properties you’re interested in, it’s time for some number crunching. Keep in mind that most lenders will ask that rent covers 125% of the mortgage repayments. What’s more, unlike regular mortgage deals, buy-to-let lenders will often demand a minimum 25% deposit before they will sanction the loan.
- Crucially, make sure you cover as many bases as possible before investing. Never take someone else's word for it. Ultimately it is you who will have to shoulder the risk so it's important that you are comfortable. Conduct thorough due dilligence checks on the property, tenants, letting agents as well as any other third party.
5. Finding tenants and managing the property
- Having identified your target area and secured a property, it’s now time to find some tenants.
- By now you should have a good idea about who your target tenants are. Use this knowledge to inform what you do next. If you’re planning to let to students, what would they expect from a property? Likewise, a group of young professionals or a family. Each type of tenant will expect something different.
- Once you’ve settled on your target tenants, you can decide how you want to manage the property.
- Many newcomers into the market may be tempted to pay an agent to handle every aspect of the maintenance of a property. Although this option can be quite expensive (perhaps costing between 10-15% of the rent), it can save a lot of hassle and stress on your part, whilst still delivering a return on your investment.
These points are just the tip of the iceberg. If you're a landlord, what advice would you have for newcomers?