The Basics of Buy-to-Let 1st Jun 2015

The buy-to-let market is booming, with people who once would have bought their own homes chasing a limited supply of rental property. As a result, the yields on buy-to-let properties have risen to 5-10%, even more in some areas. But what do you need to consider when choosing your buy-to-let investment property? What are you looking for from your investment?

There are 2 ways in which you can earn from property investment. Capital growth, or capital appreciation is the increase in the value of your property over time. Rental income is the rent paid to you monthly by the tenant. If you divide the annual rent into the purchase price of the property, this gives you your yield or annual return. Key Points to consider therefore are:

• Expected levels of capital growth
• Expected income streams
• Your personal circumstances and, for example, whether capital growth or income is more important to you

You should not consider buy-to-let without understanding the buy-to-let market, and all the risks and rewards associated with it. You need to have sufficient funds to cover all your costs, including, but not limited to, mortgage (see newsletter article on buy-to-let mortgages for further information), council tax, service charges/factoring fees, all safety certificates (gas and electricity), smoke and heat alarms, legionella testing, landlord registration etc. You should also have money set aside for major repairs and void periods.

And now to the important parts – rental income and expected capital growth. Seek expert advice on expected rental income and capital growth levels from a reputable local letting agent. Your mortgage provider will ask for this information. The Key Place can help you with this.

Once you have worked out your budget, you need to choose the area in which you want to invest, and work out what you want to buy. Think about the following:

• Which areas are in high demand? Where do tenants want to live?
• How many bedrooms can you afford (do you want to go down the HMO – house in multiple occupation) route?
• Which properties bring in the biggest yields?
• Which properties will achieve the greatest capital growth?
• Do you want to buy a new-build or traditional tenement type property?
• How much can you afford to refurbish a property, or do you need to buy in walk-in condition?
• What is the size and layout of accommodation like?
• Does the property have kerb appeal? Bear in mind that tenants may be put off if they have to access the property via a dark alleyway.
• What are the local amenities like? Consider transport links, distance to main cities, local schools and shops etc.

If you are a buy-to-let investor looking at expanding your portfolio, you should consider spreading your risk to keep you safe. It may be worth thinking about different areas and different property types, not just sticking with what you know. That way, if that market dips in one area for any reason, you will be less exposed.

You have to think about whether you want to become a full time landlord, looking after the property yourself and dealing with emergency repairs at 3am, whilst trying to work out which new piece of letting legislation will affect you directly. Or would you prefer to keep the day job and have a reputable letting agent manage the property for you, allowing you to relax knowing your investment is in safe hands?

So how can The Key Place help you?

For the last year, The Key Place has invested in compiling local rental statistics, for the areas in which we operate. These unique statistics provide invaluable information on the local rental market in your area, such as average rents by town, number of properties for rent by town, and type of properties for rent by town. These will help inform your buy-to-let decisions.

Furthermore, The Key Place offers a full buy-to-let service. We can source high yield properties, find the best mortgage, complete the acquisition and then manage your buy-to-let investment.