Don’t be greedy
Whilst you may be hoping for long term house prises to rise, invest for income not short term capital growth. A good comparison is looking at the property’s yield – that is annual rent received as a percentage of the purchase price. For example, a property delivering £10,000 worth of rent that cost £200,000 has a yield of 5%. Rent should be the key return for buy-to-let.
Looking further afield or doing a property up
Most buy-to-let investors look for properties near where they live. But your town may not be the best investment. It is also worth looking at properties that need improvement as a way of boosting the value of your investment. Tired properties or those in need of renovation can be negotiated hard on to get a better price and then spruced up to add value. However, remember to ensure that the price is low enough to cover refurbishment and some profit and that you allow for the inevitable overrun costs.
Haggle over price
As a buy-to-let investor you have the same advantage as a first time buyer when it comes to negotiating a discount. If you are not reliant on selling a property to buy another, then you are not part of a chain and represent less of a risk of a sale falling through.
Know the pitfalls to buy-to let
Before you make any investment, you should always investigate the negative aspects as well as the positive. House prices are either steady or on the up right now but growth has slowed and could fall again. If property prices dip, will you be able to continue holding your investment? What will you do when interest rates rise? Even in popular areas, properties can sit empty. What happens if the property is vacant for two months? Homes often need repair and things can go wrong. Plans need to be put in place to cover major repairs, such as a new boiler.
Consider how hands on a landlord you want to be
Buying a property is only the first step. Will you rent it yourself or get an agent to do so? Agents will charge you a management fee, but will deal with any problems and have a good network of plumbers, electricians, and other workers if things go wrong. You may make slightly more money doing it all yourself, but be prepared to give up your evenings, weekends and what you are going to do when you receive a telephone call at 2am in the morning and need a plumber and electrician because there has been a flood.