Ten tips for buy-to-let

Published 30th Mar 2008

Poor old buy-to-let. Once upon a time it was David Beckham, Wayne Rooney and Kate Moss all rolled into one – making headlines on a daily basis with every move endlessly analysed.

BRICKS AND MORTAR: Buy-to-let can still be an interesting way to build up a good investment

Predictions of buy-to-let's demise continue but landlords are refusing to listen.

But while it's not quite the hot property it once was, investors looking for steady growth are returning to the buy-to-let market.
Industry experts predict a solid future for buy-to-let and say with the days of rocketing short-term capital growth gone, long-term investors are set to benefit.
Like any investment, buy-to-let comes with no guarantees, but for those who have more faith in bricks and mortar than stocks and shares here are This is Money's top ten tips:

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 buy-to-let is the investment you want. Your money might be able to perform better elsewhere.

2. Choose a promising area
Promising does not mean 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?

3. Do the maths
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. Traditionally buy-to-let lenders want rent to cover 125% of the mortgage repayments, although some are relaxing this, and interest rates are higher. Most also look for a 15% deposit, which protects against falling prices.
Will your investment work out? What will happen if the property sits empty for a month or two?

4. Shop around
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.
If you are looking for advice consider using a specialist buy-to-let mortgage broker. Remember asking them for information means you are under no obligation to use them.

5. Think about your target 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? If they are students, it needs to be easy to clean and comfortable but not luxurious. If they are young professionals it should be modern and stylish but not overbearing. If it is a family they will have plenty of their own belongings and need a blank canvas.

6. Don't be over ambitious
We have all read the stories about buy-to-let millionaires and their huge portfolios. In most places the days of double digit house price rises are gone, so experts say invest for income not short-term capital growth.
Once mortgage, costs and tax are taken into account, you will want the rent to build up over time and then be able to use it as a deposit for further investments.

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.

8. 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. This can be a sizeable asset when negotiating a discount.

9. Know the pitfalls
Before you make any investment you should always investigate the negative aspects as well as the positive. The general consensus is that house prices are relatively stable, but they may drop slightly or even considerably. If that is the case will you be able to continue your investment? Even in popular areas properties can sit empty. One rule of thumb many buy-to-let investors apply is to factor in the property sitting empty for two months of the year – this gives a substantial buffer. 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.

10. Consider how hands-on 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. 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 make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs.

If you choose an agent you do not have to go for a High Street presence, many independent agents offer an excellent and personal service. Select a shortlist of agents big and small and ask them what they can offer you.

Source: ' This is Money '

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