After the traumas of 2008, the years 2009 and 2010 have brought better returns for buy to let property investors. Now, although bank lending remains tight, the advice from many experts suggests that a high and still increasing demand for lettings, rising rents and low mortgage interest rates foreshadow a brighter outlook for buy to let property investors, if they can raise a buy-to-let mortgage.
However, choosing the right property to buy is the ultimate key to a profitable investment, and it's essential to consider both the area and your target tenant market very carefully before investing in a buy to let property.
Where to Buy a Buy to Let Property
Generally speaking, a city or town with a rapid population turnover is likely to generate the greatest demand for rental accommodation, and hence the highest rents and the shortest downtime between lettings. Rural lettings are very much less in demand, except in popular holiday areas, where holiday lettings can be very profitable.
Best of all are areas where new jobs are being created in industry or commerce attracting not only people who would normally expect to rent, but also those unable to sell houses in their previous home area.
Universities and hospitals also create a high and constant demand for rented property, although the implications of providing student accommodation in particular should be carefully assessed (see below).
For most potential tenants, convenience of access not only to their workplace, but to buses, trains, shops and recreational and leisure facilities will be a high priority.
Likely Tenants for Buy to Let
There is a wide spectrum of potential tenants, all with quite distinct needs. The more important groups include:
- Established Young Professionals. In the current state of the economy, young professionals and salaried workers in their late twenties and thirties are likely to have to move around in search of employment, and also to wait longer before they can afford to buy a property. This creates a significant demand for better quality houses and flats, which need to be in desirable areas and in first class condition.
- Newly Independent Individuals or Young Families. Individuals in their late teens and twenties in their early working years are more likely to be looking for small flats, particularly studios, or alternatively rooms in shared accommodation with colleagues or friends. Families will be seeking larger flats or small houses. For both groups, affordable rents are likely to be the highest priority.
- University Students. Affordable rents and close proximity to the university will be the top priority, and most students will be happy with individual rooms and shared cooking and toilet facilities in a house conversion. Inevitably, wear and tear is likely to be a significant factor in student lettings, and most letting agents recommend planning on complete refurbishment every 3 years.
Capital Growth in Buy to Let Property
It's important not to focus exclusively on rental income; any property you choose should be one which can be expected at least to maintain its value, and preferable to offer the potential for capital growth.
Maintenance Costs of Buy to Let Property
Wear and tear on a buy to let property is inevitably high and a well built new or modern property is likely to be cheaper to maintain. However, for an investor prepared to bear the cost and hassle, buying an older property for renovation or even conversion may be a profitable proposition.
Rental Property Management
Letting agents don't come cheaply and are likely to charge at least 15% of rental for even a minimal service. Self management will greatly improve profit margins for landlords choosing a property where this is ;possible (but don't underestimate the time and hassle involved).
Professional Buy-to-Let Advice
Although your investment decision should be guided by all these considerations, specific professional advice should always be sought from estate agents specialising in letting like Leaders:
- First on the general rentability of different types of rental property in the areas you are considering.
- Finally on the likely demand and expected rental for any specific property in which you are seriously interested.
For more general buy to let advice its also worth consulting landlord's associations and advisory groups like Landlord Assist.
Tony Allen - In 2004 I began my "fourth career" as a freelance writer. In my first career, after training at the Royal Military Academy Sandhurst, I ...
