What should you consider before getting into BTL??

What should I consider before committing to buying Buy-to-Let property?

Like any investment, buy-to-let property comes with its risks; there is always a risk as with any investment. Below are a few steps to consider before making any decision.

1. Research the market

If you are new to buy-to-let, what do you know about the market? Do you know the risks, as well as the benefits?

Make sure that buy-to-let is the investment you want. Your money might be able to perform better elsewhere. In tough times a high-rate savings account will beat most investments. If you know someone who has entered the buy-to-let market, ask them about their experiences, or chat with other investors. GordonBarker can also introduce you to IFAs and other financial contacts to help with the decision making process.

2. Choose a promising area

Promising does not mean the most expensive or cheapest. Promising means a place where people would like to live and this can be for a variety of reasons. Where in your town has a special appeal? If you are in a commuter belt, where has good transport? Where are the good schools for young families? Where do the students want to live?

Have a look at the rental market and homes to buy online or speak to someone within our office to help you with the desirable areas for the type of tenants you are looking for.

3. Do your maths. Is it financially viable?

Before you think about looking around properties sit down with a pen and paper and write down the cost of houses you are looking at and the rent you are likely to get. These days most lenders want a minimum of a 15% deposit, which protects against falling prices, and in the wake of the problems in the mortgage market many are now demanding 25% deposits. On some occasions the best rate buy-to-let mortgages also come with large arrangement fees, so be sure to factor these in too

  • Can you afford an increase in interest rates?
  • Would you be able to cover interest payments if you had no tenant?
  • If the boiler, or other vital equipment, breaks could you afford to replace it immediately?

4. Get Independent financial advice

Do not just walk into your bank and building society and ask for a mortgage. It sounds obvious, but people who do this when they need a financial product are one of the reasons why banks make millions in profit. GordonBarker can introduce you to a number of IFAs, mortgage brokers and other financial contacts that can help you pick the best deal for you

5. Who is your ideal tenant?

Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant. Who are they and what do they want?

The team at GordonBarker are very experienced with tenants of all types from students to retired professionals, and young professional families to those on housing benefit. Each property type will likely attract a certain tenant type, this is a huge factor that needs to be considered before buying anything.

6. Don’t be over ambitious

We have all read the stories about buy-to-let millionaires and their huge portfolios, but a lot of these have gone bankrupt by over extending. Be sure that you can survive any market condition that is predicted or likely in the coming 5 – 10 years. With house prices at a high level currently then buy-to-let investing should be seen as an income, and long term capital growth rather than short term capital growth.

Short term capital growth, buying at BMV and flipping are other forms of investment into property that could also be explored.

7. Consider looking further afield

Most buy-to-let investors look for properties near where they live. But your town may not be the best investment. The advantage of a property close by is being able to keep an eye on it, but if you will be employing an agent anyway they should do that for you.

Cast your net wider and look at towns with good commuting links that are popular with families or have a sizeable university.

We are very fortunate in that parts of Dorset and Hampshire are very good buy-to-let investment areas with house prices rising, rental prices are also rising for popular property types and there is an abundance of tenants looking for good quality property at present.

8. Negotiate over sale 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. This can be a sizeable asset when negotiating a discount.

9. Know the risks

Before you make any investment you should always investigate the negative aspects as well as the positive.

Even in popular areas properties can sit empty, tenants can become redundant / lose their jobs and rent can just not be paid by a tenant. Rent recovery, eviction protection and rent guarantee policies offered by GordonBarker can really help to reduce the risk of lost rent.

One rule of thumb many buy-to-let investors apply is to factor in the property sitting empty for 6 weeks of the year – this gives a substantial buffer that in most cases will never be reached. Tenants are becoming longer and longer terms and it is more likely that years could go by with the same tenant in situ.

Homes often need repairing and things can go wrong. If you do not have enough in the bank to cover a major repair to your property, do not invest yet. When a property is kept in a good state of repair on the whole tenant’s do respect that and will keep it that way. Regular cleaning, decorating and repairs will keep a good tenant and keep them for longer too.

10. Consider how involved you want to be…

Buying a property is only the first step. Will you rent it out yourself or get an agent to do so?

All 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 can potentially make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs. And be sure that you know how to deal with non-payment, be sure you have the correct procedures in place for renewals, gas safety certificates, fire and soft furnishing regulations, carbon monoxide alarms legionnaires testing and a whole host of other legal requirements that a landlord must adhere too. When you manage the property yourself you need to be sure you are following the rules, as a tenant that knows the rules more than the landlord is a very dangerous thing and can be very, very expensive if it’s not done incorrectly.

I am always happy to discuss any BTL purchase before you make it to ensure you are getting what you want / need from the deal. Feel free to email me anytime at aaron@gordonbarker.com or call 01202292400