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Buy-to-let properties and what to consider

There are risks involved with any investment and buy-to-let properties are no exception. We have compiled ten important steps of what to consider before making any big decisions and committing to your new investment.

Step One: Do some market research

If this is your first experience with buy-to-let properties, then you always have to make sure you’re aware of the risks as well as the benefits. It’s important to ensure this is the right choice for you because your money might perform better elsewhere.

When money is tight, a high rate savings account is a better choice than most investments. In case you have a friend who has entered the buy-to-let market recently, it’s definitely worth asking them about their experiences.

Here at Gordon Barker, we can introduce you to IFAs and other financial contacts who will assist you with deciding whether this is the right option for you.

Step Two: Pick a promising location

When we say “promising”, we don’t mean the cheapest option nor the most expensive one. A promising location would be one where people seek to live. Can you identify a location in your area that has that X factor?

Which area has the best transportation links for commuting? For young families, where are the best schools? Which location is favoured by students? You can familiarise yourself with the rental market online. If you’d like to speak to one of our experts about desirable areas, don’t hesitate to give our friendly team a call.

Step Three: Make sure the decision is financially viable in the long term

We recommend sitting down with a pen and paper and writing down the cost of houses you’re currently looking at along with the rental fee you are likely to get. Most lenders want a minimum 15% deposit as a safety against falling prices. In the wake of problems in the mortgage market, some lenders are now demanding deposits of 25%.

The best rate buy-to-let properties sometimes come with large arrangement fees that will also need to be considered. Will you be able to afford an increase in interest rates? If you have no tenant, will you be able to cover the interest payments yourself? Would you be able to afford to immediately replace vital equipment such as a boiler if it breaks?

Step Four: Speak to an independent financial advisor

Some people walk into a bank or a building society and simply ask for a mortgage which is why banks make millions on profit from people who are not well informed. At Gordon Barker, we have many financial connections including mortgage brokers and IFAs that we’d be happy to introduce you to so you’ll be able to pick the best possible deal.

Step Five: Imagine your perfect tenant

It’s useful to put yourself in the shoes of the tenant rather than imagining whether you yourself would like to live at the property. Who are they and what are their requirements?

The Gordon Barker team has extensive experience with all types of tenants from students and those on housing benefits to young professional and retirees. Every property will attract a certain type of tenant so it’s important to carefully consider this factor before committing to a purchase.

Step Six: Don’t be too ambitious

There are a number of stories out there about buy-to-let millionaires with extensive portfolios going bankrupt by overreaching. To avoid those pitfalls, it’s important to make sure that you can survive any market condition that is predicted within the next 5 to 10 years.

House prices are currently at a high level which is why buy-to-let investments should be seen as an income and long term capital growth rather than short term.

Step Seven: Explore properties further away

The majority of new buy-to-let investors look for properties that are close to where they live. However, your town may not be the ideal investment right now. Being able to keep an eye on the property because it’s nearby is an advantage but if you’re using an agent, they will be able to do that for you.

Gordon Barker recommends casting your net wider and finding properties in towns with good transport links that are also popular among young families or have a university. Parts of Dorset and Hampshire are very good buy-to-let investment areas. With house prices rising, so will rental ones for popular property types that tenants are always looking for.

Step Eight: Negotiate the selling price

A buy-to-let investor has the same advantage for negotiating a discount as a first time buyer. You will represent less of a risk for the sale falling through if you’re not relying on selling one property to buy another. This asset should not be overlooked when negotiating the sale price.

Step Nine: Know all the risks

When considering a large investment, you should always weigh the negative aspects as well as the positive ones. A number of issues can occur even in the most popular areas such as properties sitting empty and tenants losing their jobs or becoming redundant.

Gordon Barker can help you greatly reduce the risk of lost rent by offering rent recovery, eviction protection and rent guarantee policies. People are signing longer contracts than ever before and it’s likely that years can go by without having to change tenants. Something many buy-to-let investors do is factor in the property sitting empty for 6 weeks of the year – this buffer is substantial and unlikely to be reached.

There are many things that can go wrong in a property and repairs are often required. Do not invest yet if you’re not able to afford a major repair. Maintaining a property in good condition will inspire the tenants to keep it that way at all times. Tenants are likely to stay at the property for longer periods of time when regular decorating, repairs and cleaning are carried out.

Step Ten: Decide your level of involvement

The first step is buying the property. Will you be renting it out yourself or be using the services of an agent? Agents do charge a management fee, however they also have access to a network of electricians, plumbers and decorators should something go wrong or need fixing.

It’s true that you can make more money by renting out the property yourself. But you should consider losing weekends and weekday evenings to arranging viewings, carrying out repairs and setting up advertising.

You must also be prepared to deal with non-payment, have a procedure in place for renewal requests, possess certificates for gas safety, meet regulations for fire and soft furnishings and carry out regular testing on smoke alarms. There are a number of legal requirements a landlord has to adhere to. Landlords must follow the rules perfectly because tenants who know the rules better than the landlord can be dangerous and repairs can become very expensive at a later date when not done correctly the first time around.

Here at Gordon Barker, we offer a wide range of services that can be tailored to your specific needs and requirements. Whether you need proper advertising, a tenant finding service or a comprehensive management package that will include a variety of different protections, speak to a team member today for more information – we’ll help you take a step in the right direction.