Nick Clark, Managing Director of Homebuyer Events, organisers of the show advises: “The key to this business as with any investment is to undertake thorough research. There’s a whole range of options currently available aside from UK residential property, including property investment clubs, commercial opportunities and homes overseas. There are still substantial returns to be made by investing in property – with the buy to let boom by no means over!”
To help you through this potential minefield, The Property Investor Show has compiled a ten-point buy-to-let action plan:
1. Make sure you have a sound plan and stick to it – You must have very clear goals on what you are trying to achieve and how are you going to get there. Your plan should cover a period of at least five years. You should decide on your budget before you even look for a property, and agree the maximum amount you can spend and the type of tenant you want to attract. Needless to say you need to carry out extensive research. You must be absolutely certain that the property is a good fit with your overall strategy.
2. Realistic returns – Speak to local letting agents to get a realistic view of the kind yields you could expect. Calculate all the hidden costs such as decoration/DIY/agency fees etc. Also allow for rental voids; you cannot rely on your property being permanently occupied - on average UK investors experience three weeks per year without a tenant* Also research whether there is a genuine demand for rental accommodation and don’t rely on what you hear, look through advertisements and speak to lettings agents.
3. UK or abroad? – Understand the area in which you’re investing. If you are considering investing overseas, go and visit the area yourself.
4. How you will manage the property? - If the property is not local you will have to consider using a letting agent to manage the tenancy, which can prove costly and will cut down your returns. Lettings agents usually charge around 15% of the value of the property.
5. Never buy with your heart – always use your head and run the numbers to see how your investment stacks up. This is a business transaction, you will not be living there personally. This does not mean that instinct isn’t important – it is – but do the maths and make sure that you haven’t been sold on the fabulous furnishings etc and that you are set to make a good financial return. Remember, property is about finance and returns, it is not a safe place for trophy hunters.
6. Sort out your finance – If you don’t know the finance rate or loan to values of a particular property you cannot forecast your profit or return. It is essential – so start with a mortgage agreement in principle before you start looking. Don’t overstretch your finances. Remember you may experience void periods, or the cost of borrowing may increase. You must be able to cover such unforeseen variables.
7. Short or long term tenants? – This depends on the type of property and where it is situated. Short term tenancies provide higher rental incomes, but you have to compensate for more void periods.
8. Decorate with simple but hardwearing furniture – you want to attract tenants, but at the same time, replacing furniture can prove costly. The average property investor spends £2,300 on furnishing a new property*.
9. Location, location, location – this is of paramount importance. Take local infrastructure and amenities into consideration, as proximity to shops, rail links, the tube etc. can increase the value of and demand for the property.
10. Make a decision on whether you want or need to maximise capital growth vs capital income – High rental income gives you good cash flow, whereas capital growth will give you big long term profits. The risk of high capital growth is that when it comes with low rental income, you might not be able to fund the property during the difficult years and be forced to sell at a low price. By ensuring adequate cashflow via the rental income you can hold on for the long term capital growth.
* Statistics are from a poll conducted by the Property Investor Show of over 2,000 property investors.
