property

My top 7 tips for first time buy-to-let investors

In the past few decades, a lot of people are turning their hand to property as a major source of income. As a first time investor, it pays to know where to start and to be aware of how to make smart decisions when it comes to purchasing investment property.

So here are some of my top tips to help you through your buy-to-let process.

  1. Research the market

If you’re new to this, how much do you know about the market? Do you know about all the risks, as well as the benefits?

The rates in saving accounts being much lower in recent years is one of the main factors of the growth of property investments. But investing in properties means tying up capital in something which could fall in value.

Investing in buy-to-let involves committing thousands of pounds to a property and usually taking out a mortgage. When house prices rise, this makes it possible to make big gains above your mortgaged debt, but when they fall your deposit gets hit and the mortgage stays the same.

Property investing pays off greatly for some people, but it is vital that you go into it with your eyes wide open, completely aware of the potential advantages and risks.

If you know people who have invested in property before, ask them about their experiences. The more knowledge and the more research you do, the better the chance of your investment paying off.

  1. Choose the area of your property wisely

A good area does not mean the cheapest or most expensive. It’s an area where people would like to live, for a various amount of reasons.

Where in the area has a special appeal? Where are the good schools for young families? Where do the students want to live? Where has good transport?

You need to match the kind of property you want to buy and can afford with the locations that people who would want to live in those homes would choose. In most cases, people usually invest in property near where they live – they are likely to know this market better than anywhere else and are more able to keep tabs on the property.

  1. Do your calculations

Before even thinking about looking at properties, sit down and write down the prices of houses you want to look at and the rent you are likely to get. Buy-to-let lenders usually want rent to cover 125% of the mortgage repayments with many now demanding 25% deposits, for rates considerably above residential mortgage deals.

Once you have the mortgage rate and an approximate idea of rent sorted then you have to make the decision on whether your investment will work out. What about maintenance costs? What will happen if the property sits empty for a month or two? These are things to consider as well.

  1. Take your time getting the best mortgage

Don’t just walk into your bank and ask for a mortgage. Click here to get details of the latest buy-to-let mortgage deals from companies including HSBC, TSB, First Direct and more.

It also pays to speak to a good independent broker when looking for a buy-to-let mortgage. They can provide you with information on current available deals and also help you weigh up which one is right for you.

You should still do your own research so that you can go into the conversation with lots of knowledge on the type of mortgages you should be offered.

  1. Think about your target tenant

Don’t think about whether or not you would want to live in the property; think about your target tenant. Who are they and what do they require? If it’s a family they will have plenty of their own belongings and need a blank canvas. If they are students, it needs to be easy to clean, and not too luxurious.

Allowing tenants to make their mark on a property will make them stay for longer – these are in ways like redecorating, or taking out unwanted furniture.

You can also take out an insurance policy against your tenant not paying the rent – usually known as rent guarantee insurance. This can cost as little as £50, and is available as part of a landlord insurance policy, or as a standalone product from a specialist provider.

  1. Consider buying a property that needs doing up

It is worth looking at properties that need improving as a way of boosting the value of your investment. Properties in need of renovation can be negotiated hard on to get a better price and then spruced up to add value.

If you can add some value to a home straightaway then it gives you a better margin of safety on your investment. However, remember to make sure that the price is low enough for you to be able to cover refurbishment costs and that you allow for the inevitable over-run on costs.

  1. Decide how hands-on you want to be

Buying a property is just the first step – will you rent it out or get an agent to?

Agencies charge a management fee, but they deal with all the problems and have a good network of electricians, plumbers and other workers if things go wrong.

You can save money by renting the property out yourself but this will mean spending more of your time on viewings, advertising and repairs.

If you choose to go with an agent, select a shortlist of big and small companies and find out what they can offer you. If you are considering doing it yourself, look at where to advertise your property and where to get the legal documents from, such as tenancy agreements.

One of the biggest drags of buy-to-let landlord’s investment is when there is a time that you don’t have anyone in the property – the void period. Good tenants who want to stay can help avoid this – and if they do move on they might even recommend your property to people they know.

Make sure your property is a nice place to live, keep up with the maintenance, and try to build a good personal relationship with your tenants.

If you would like more advice on anything in the property and investment sector, contact me for a chat.

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