Buy-to-let boom: a highly attractive investment

Tuesday 25th June 2013

For those who have enough money to raise a big deposit, buy-to-let looks an attractive investment, especially compared to low savings rates and stock market volatility. With rising rents and improving mortgage deals, people are still turning to property investment, says Matthew Dabell of Aspire estate agents.

Here are his top tips and advice for successful property investing:

Research the market
Think about your target market – are they families, professional sharers or students? Look closely at what their priorities might be in terms of local amenities - shops, restaurants, bars, transport, schools or open spaces? Put yourself in their shoes – who are they, what do they want?

For students, it would probably be something easy to clean, not luxurious and with modest fixtures and fittings. A more modern, stylishly equipped property will hold more appeal for professional people. And families will tend to prefer a property in good condition, yet with a blank canvas as they have more belongings and will wish to put their own personal imprint on a home.

Be flexible
Within reason, remember to be flexible. Letting tenants make their own mark is a good idea - either in terms of adding a beloved sofa, removing a bed that is not required - to putting up pictures and even allowing them to paint the property to their own taste and style.

In our experience, tenants stay much longer if the landlord is flexible and responds quickly to requests.

Take out insurance
It is possible to take out an insurance policy against non-payment by tenants. Called a rent guarantee insurance, this can cost as little as £100, depending on the amount of rent charged and good tenant references. This is available as a stand-alone product from aspire or you can add it to a larger contents/buildings insurance policy.

Do the maths
There are two main criteria when working out costs and yield. Typically, lenders require rent to cover at least 125% of mortgage payments and deposits need to be 25% or larger. Aspire can put you in touch with a suitable broker for buy-to-let mortgages. Be particularly aware of working out the costs if there is a chance of a property staying void for a few weeks or more. Be willing to be flexible and negotiate on rental price from year to year.

High yield or capital growth?
Of course the ideal is the best of both. However, in reality, the more sought after locations will bring higher capital growth but fairly tight yields. You will find that some properties in certain locations provide an above average yield, yet the potential long term growth may be less than that of the overall market. For instance, we have witnessed an appreciation of 50% in 8 years on a rental flat in Putney – which is relatively low – but the yield is 7.9%. Another property in Wendle Square in Battersea has appreciated by 100% in 3 years but only yields 3%.

Although buy-to-let investors do purchase in modern developments for ease, these generally show slower capital growth relative to older or period properties which tend to hold their market value and offer longer term growth potential.

Ultimately it makes sense to retain a good tenant for longer periods. One of the biggest things to avoid is a period when the property is empty – even a short time, say 3-4 weeks, can mean you lose out. It is not worth holding out for a better rental price at the risk of the property remaining empty for a long period with no guarantee of achieving a higher price either.

How hands on do you want to be?
If you rent the property out yourself you have the hassle of showing tenants around the property, as well as the responsibility for the marketing and maintenance of it. If you decide to go down this route, then be sure to make regular visits to your tenants in order to maintain good upkeep of the property as well as anticipating problems rather than reacting to them.

If you prefer to appoint an agent to let and manage your property, they will obviously charge you a letting and management fees but in return you can expect to achieve a higher rent as well as a hassle free process. Managing agents will also deal with all the problems encountered during a tenancy and have a good network of contractors if things go wrong.

We have found that managed properties tend to retain their tenants for longer, as they are generally better maintained and managed.

And it’s always worth bearing in mind that it is your property but the tenant’s home!


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