What to consider before letting property
More people are looking to buy-to-let as an investment option. We take a look at the 4 things to consider before investing in buy-to-let property.
Target audience: The most important decision you’ll make, and the one that will influence all your other decisions during the buying process, is who you want your future property to be rented to and how much you’re going to rent it for.
To understand this, you’ll need to do some research on your chosen area and the types of people that are renting properties there, as well as how much they’re paying.
Whether you’ll end up targeting families, students, professionals or retirees will determine what you can charge and what type of property you’ll need to invest in.
A family will likely need a house with more than two bedrooms, while a young, professional couple may be happy with a one-bed apartment.
What type of property and tenant you go for will determine the rent you can charge.
Area: Before you set your heart on somewhere, it’s really important to consider carefully where you’re going to buy the property. Will it be in the town you live in, a nearby city or even somewhere further afield?
Ultimately this is an investment, so you need to consider the yield and rental return. How are you going to manage the property? If it’s fully managed you can pos- sibly look further afield.
While you may have what seems like an obvious choice in mind, you’ll need to think carefully about the pros and cons of your chosen location and how well a rented property would perform in that area.
Have a look around and do some research into the local market.
Put yourself in the shoes of your target tenants and try to understand what it is they’ll be looking for from the area they live in.
This could include accessible and regular transport links to major cities, vibrant nightlife, local sports clubs, good schools and neighbouring families or a large population of students — and remember, while the area may be to your taste, it won’t be you living in the property.
If you’re dead-set on a particular location, you may need to reconsider who your target tenants will be — have a look at the local market and see what rental prices and property styles are currently on offer, to give you an idea of what’s popular.
If you know any local landlords, have a chat with them to see what their opinions are on the area and who’s renting there.
Affordability: Becoming a landlord is an investment, which always has its risks. It’s imperative that you prepare for every eventuality when it comes to working out what you can afford.
The process of buying a buy-to-let property is much the same as buying a private home — you’ll need to take many of the same budgetary requirements into account as when you bought your house — mortgage costs, deposit, legal fees, stamp duty etc.
You’ll also need to be able to afford to potentially pay two mortgages (your own mortgage and the buy-to-let one), on your own and at the same time, without rental income to help offset the costs.
This is because you’ll potentially face scenarios where there aren’t any tenants renting the property — although there are special insurance products to help protect you in situations like this.
other things to consider are unexpected costs, such as necessary repairs and renovations (before, during and after a tenancy), and expected costs such as letting agents fees.
Make sure you’re prepared to invest the time, energy and money to ensure you’re legally compliant at all times.
When things go wrong: Planning for every eventuality when you’re thinking of investing in buy-to-let is very important. From nightmare tenants to empty properties — lots of things could go wrong and you’ll need to have the right processes and safety nets in place to deal with them.
Do some research on legal matters, such as eviction notices, your right and responsibilities, tenancy agreements and more?
Consider appropriate buildings, contents (if applicable) and rent guarantee insurance in place to protect yourself as well as you can from being out of pocket.
Don’t forget tenant referencing too, you’ll want to be safe in the knowledge that your tenants are who they say they are and won’t have any problems paying their rent.
Talk to other landlords and get their tips and advice on dealing with nightmare tenants and any other obstacles that may arise.
Prior preparation will mean that, when you’re ready to rent your property out, you’re confident that it’ll be a stress free, easy process for you and your tenants.
Becoming a landlord is an investment.