If you want to get involved in property investing, where do you start? There’s no such thing as a sure-fire investment (no matter what a sales rep might tell you) and property is no different. So what should you check before you begin?
1. Research the market
It sounds glib to say ‘do your research’, but — having talked to several successful buy-to-let investors – it’s come top every time. Ask yourself:
– Who is looking to rent in this area? If it’s young professionals, they’ll want easy access to work (whether that means being near a train or tube station or on a good bus route). If the area is better suited to young families, the priority will be a good school, easy access to shops, off-street parking and/or access to a park or play area.
– Would I live here? You shouldn’t necessarily impose your own tastes on the property, but if you wouldn’t live there (because it’s dingy or the furniture is falling apart), why would anyone else?
SAVVY TIP: A successful property investor once told me that one of his secrets of success is making sure that the first person who walks through the door want to rent the property. That way when the rental market is tough he can still rent his properties relatively easily.
– Think about how you’ll manage the property. Many property investors forget about the service side of the business. If you’re buying to let, you should put as much effort into thinking how you will manage the property as finding it.
SAVVY TIP: Managing it yourself is obviously cheaper, but it could mean you’re ‘on call’ 24 hours a day. If you want to use a lettings agency, interview them thoroughly — you don’t want the agent to let down your business — and choose someone who’s a member of the Association of Residential Letting Agents (ARLA) as they have to abide by a code of practice and keep your money in a bonded client account.
2. Get a 25% deposit. The mortgage market is pretty difficult for property investors at the moment and you won’t be able to get a buy-to-let mortgage without a 20% deposit. For every 5% that you can provide above the 20% minimum, your choice of lender will increase while the mortgage rate you have to pay will fall. Read my article called How to get a competitive buy-to-let mortgage for an explanation of how the mortgage works.
3. Check out your tenants yourself. If you’re using a lettings agent, don’t rely on the checks they carry out. Ask for a copy of a bank statement, references from their employer and a reference from the landlord.
SAVVY TIP: If you’re advertising privately, do a credit check and follow up landlord references.
4. Be wary of new build. Even before the rise in new-build flat prices a few years ago, many professionals believed that buying a new build flat to rent out was an expensive way of becoming a landlord. Most mortgage lenders restrict the loan to value levels on new build flats.
SAVVY TIP: If you want to buy a new-build flat, find out how much of the block is currently being let out. If most is being rented out, prospective tenants will be spoilt for choice.
– Property investor and expert David Lawrenson has written a book called Successful Property Investing. It gives novice investors the right amount of practical information and insight into buy to let.
– The National Landlords’ Association costs from £50 a year and has lots of information and resources for buy-to-let landlords.
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