Before you invest, make sure you know a property’s rental income
When you are conducting your due diligence, you must discover how much your investment property is likely to make in rental income. If your property doesn’t produce the rent you expect, you’re going to have to either subsidise it or sell it: property investment can crash without proper due diligence.
Recently, I discussed realistic market rents and how to uncover the realistic market rent of your property. Read that article, and you’ll learn the strategy to use when speaking to agents and asking about rental potential. However, one two-bedroom apartment can be very different from another. The following questions (with explanations where needed) will help determine the real rental value of your investment property.
1. Does the property require furniture? If so, what kind?
In the UK, about 95% of our properties are rented out unfurnished; yet many rental agents will explain that it’s a must. This is due to the large commissions on selling furniture, which can be as high as 40%.
2. Does the property benefit from parking, and if so, what type of parking?
- Secured will mean some form of gate or security
- Allocated means that it’s definitely your spot
- Right to park means that you have the right to park as long as there are spaces left: if they are all used, then you miss out
3. Where do visitors park?
It’s always good to know where your friends are going to park when they visit.
4. Is there a mix of owner-occupiers and rental tenants?
I avoid developments that are entirely filled with rental tenants. I prefer developments that have something like a 60/40 mix of homeowners and renters. To begin with, an apartment building or estate that has homeowners is far more likely to be well maintained, and benefit from maintenance funds and residents’ committees. When there are too many rental units, the competition to attract the best tenants will be very strong, and that could mean lower rental income.
As you can see, the mix of owner-occupiers and rental tenants is a factor that affects both capital growth potential and rental income.
Are there any gyms, pools, or concierge facilities?
While such facilities may be great for the tenant, as an investor they usually (not always) turn me off. They mean the price of the property is going to be higher, and effectively I’m paying for my tenant’s spare time activities. The maintenance fees will also be higher.
5. Does the property have a BBQ or community areas?
This obviously provides a great environment for your tenants.
6. Is this going to appeal primarily to students or shared accommodation?
Students and shared accommodation tenants are high maintenance, and that is in direct conflict with the Set and Forget strategy. When you have students or sharers as tenants, you could suffer from high turnover and plenty of other problems. If you do decide to go down this route, read our article “How to identify the best student accommodation investments”.
7. What direction does the sun rise and set in, in relation to the property?
Which way is the property facing? In the Northern Hemisphere, south-facing properties will get more sunlight than north-facing, and vice versa in the Southern Hemisphere.
8. Is any of the property built underground, or wooden structures exposed to the ground?
Damp can be a problem below ground, and pests (like termites in Australia) can compromise the structural integrity of the building’s foundations.
9. What is the leasehold term?
10. How many apartments are in the development?
11. Are any ground floor flats sited on busy roads or thoroughfares?
Ground floor flats can be a problem from a rental point of view, especially if they are sited on busy, noisy roads or thoroughfares. For obvious reasons, people may not want to rent them. Thus, prices tend to increase with each higher floor in a development.
It’s not always a turn-off, however. In fact, in some cases it can be an attraction; especially if you get French windows leading onto a garden space.
12. Is the property you are buying (e.g. two-bedroom apartment) suitable for the area?
There is no sense in buying a seven-bedroom home in an area where one and two-bedroom apartments are in demand.
13. How many flights of stairs do you have to walk up to reach the apartment?
Just as ground floor flats can be off-putting for some people, so can higher-floor apartments be negative for others. My rule of thumb is that anything more than three floors up should be avoided.
14. Is flooring included?
This primarily applies to new build properties. If I am buying a new build property I always try to negotiate the flooring as part of the deal (perhaps in ‘extras’ after the price has been agreed), so that the property is ‘oven ready’ when the sale is completed. This means less lead time between buying and tenanting, and a faster return on investment.
15. How many bedrooms does the property have?
What is best for investment will depend on the area you are buying and the country you are buying in. In most countries, I find that apartments of one and two bedrooms are always a winner. However, if you are investing in houses, then three and four bedrooms make ideal investments.
16. Are the walls finished in the standard white emulsion?
This is the easiest paint to deal with marks and stains. It’s also available in all hardware stores, and the property will be shown in a sparkling state. White is also one of those neutral colours that make a property attractive to all.
17. Does the property have some form of new property guarantees?
Many new homes come with various guarantees on the structure and appliances. It’s important to work out what these are: they are a value-added benefit, especially when renting out.
18. How many floors in the development?
19. Does the apartment have a balcony?
20. Does the apartment have access to a roof terrace?
21. Does the apartment have a Juliet balcony?
For me, a Juliet balcony does nothing for outside space: it’s useful for airflow, and that’s about all.
22. Are there French doors on the ground floor?
I find many people don’t like ground floor properties, but those who do tend to love French doors that open out to a garden area.
23. Is the development part of a gated community?
24. Does the property benefit from any security features and/or devices?
These 24 questions will help you determine exactly how your property’s rental value should compare against another. When speaking to local agents to discover the rental value of your property, make sure that you tell them about its outstanding features – parking, outside space, white goods included, and so on. Only with these features accounted for by an agent will they be able to provide a realistic estimate of realistic rental value.
To discuss which property investment strategy would be best to meet your goals, get in touch with Gladfish on +44 207 923 6100. We’ve helped hundreds achieve their lifestyle objectives with property. You could be the next.
Live with passion
Brett Alegre-Wood
