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Buy-to-let is a hot topic at the moment, with lending on the up and more and more people choosing to become landlords.
While sales in the housing market are flat, the rental sector is booming, particularly in major cities like London and Manchester.
Average gross rental yields are far in advance of the interest you can earn in a savings account, but with that comes a challenge.
We've caught up with Nick Cooper, managing director of national letting agent Northwood.
He gives his top ten tips on how to be a winner from the buy-to-let boom.
1. Always research the market
Check local rental conditions and determine the types of renting in your area. Look for tell-tale signs that there’s a healthy rental market, like large company relocations, the opening of young/upmarket bars and shops. Don’t forget to consider the proximity of good schools and choose property with features that will appeal to the general market.
2. Decide on your target tenant
The kind of tenant you are hoping to rent to will influence the location and type of property you buy. If you want to let to students, it will need to be close to the university or at least have good transport links to it. Don’t worry about luxury – it just needs to be clean and comfortable.
Families, on the other hand, are likely to have their own furniture and belongings so they will be more interested in ‘blank canvas’ properties which they can rent over a longer time period.
Families, on the other hand, are likely to have their own furniture and belongings so they will be more interested in ‘blank canvas’ properties which they can rent over a longer time period.
3. Look for bargains
You may be able to get a discount on a property if you can promise a quick sale or if you can pay in cash. Auctions can also be a prime place for property bargains too.
4. Ensure that the property is in sound condition
It seems obvious but it’s worth a reminder: Buyers should always visit all properties, pay for an independent survey and get a solicitor to check the paperwork.
5. Compare the mortgage market
Research the various buy-to-let mortgages on offer to find the one that’s best for you. Mortgage comparison tools enable would-be landlords to research and compare a comprehensive range of products and quotes from across the mortgage market and submit an application.
6. Account for every penny
Before you buy, make sure that the sums add up and don’t forget any extra ‘hidden’ costs. As well as mortgage repayments, think about landlord insurance, gas safety certificates, maintenance fees etc.
Look ahead too and don’t just look at the present and near future. Try to calculate projections for five, ten, twenty years' time. You could use a rental income calculator to help with the sums.
7. Brush up on the Green Deal
The Green Deal is a government initiative aimed at improving the energy efficiency of properties, through the installation of energy efficient boilers, double glazing, draught proofing, loft or cavity wall insulation to name a few.
Under the Green Deal, landlords will be able to make energy efficiency improvements to their properties without having to pay for them upfront. Tenants will repay the cost of the measures through their energy bill savings whilst enjoying a more energy efficient home. Financing for the Green Deal will become available in early 2013.
8. Consider using a letting agent to manage your property
8. Consider using a letting agent to manage your property
Agents can handle a range of letting-related jobs, charging commissions based on the level of workload that they take on: from simply finding a tenant through to fully managing the property.
Therefore the right choice of letting option for any landlord depends on the level of responsibility, time, energy & risk that they personally are prepared to take on, compared to paying for a letting agent to do it for them.
9. Embrace the opportunity to have your rent guaranteed
The most common day-to-day risk to the landlord is having a vacant property or a tenant who stops paying. The most recent statistics from the National Landlord Association revealed that 49 per cent of landlords have experienced rental arrears in the last 12 months with the average void period lasting for 69 days – more than two months rent.
Northwood’s guaranteed rent service is a minimum 12 month contract whereby Northwood effectively becomes the tenant: it guarantees fixed monthly payments to the landlord, regardless of whether the property is vacant or whether the tenant stops paying.
10. Take your time
Investing in several properties can spread risk, but invest in too many of the same type, in the same area and you may risk oversupplying the demand.
If your first buy-to-let investment has gone well and you’ve caught the property bug, keep a level head about investing in more. Remember the points above, think carefully about your next investment and thus reap the rewards of buy-to-let investment.
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