Tips for profitable buy-to-let property investment
In this investment blog, we recently met a couple who built a property portfolio and quit their day jobs. Brett has also introduced you to an ex-pizza shop employee, who is an inspiration for anyone considering property investment as a way to retire. Tony Fleming took such a diligent and dedicated approach to buying an investment property that he was able to retire before he was 30 years old.
Reading stories like these, it’s clear that if you can uncover great property investment opportunities, then you’ll move towards your financial goals at a breathtaking speed.
In a recent property investment guide, we discussed seven considerations before investing in property UK. We’ve had several property investors ask us what other things there are to consider when buying specifically with a buy-to-let strategy. In this article, I look at seven considerations for buy-to-let property investment success.
Why invest in buy-to-let property UK?
The majority of people think they’ve invested in a property by buying their house. Those of us who are more enlightened know that owning a property investment portfolio is something very different to home-ownership.
Investing in property in the UK has been one of the most intelligent investment decisions made by people over the last 100 years. Property prices are more stable than stocks. They’ve increased at a much faster pace than the stock market. Rental income yields are higher than the interest on cash in a savings account; the coupon paid on government bonds, and the dividends paid on shares in the FTSE 100. For income and capital growth, investment property has been the stand-out asset for a century.
The question is, how do you benefit from the advantages of buy-to-let property investment and avoid a financial catastrophe? The answer is to act like a boy scout and be prepared. Start out in property investment by understanding your financial goals and shaping your investment strategy to achieve those goals. Do this, and you too could build a portfolio of investment properties that pay income-changing rental returns while growing in value year after year.
Keeping the following six considerations on your investment strategy radar at all times will propel you towards property investments that sustain rental income and capital gain.
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1. Understand the property and economic trend cycle
Timing is everything. It does not say that you have to wait until the market hits bottom to make a great property investment. If you try to time the market to the absolute best time to buy (or sell), you’ll miss the boat.
What I mean when I talk about timing is understanding where the property market is in its cycle, and develop your strategy to invest intelligently at that point. There will be times when you will be able to buy, release equity, and make further profitable investments quickly. There will be other times when it will be better to sit back and wait for the best property opportunities to come your way – and they will.
Many things affect property markets – jobs, infrastructure build, regeneration, local authority plans, and so on. While we tend to think about the property market as one big beast operating across the whole of the UK, it is, in fact, a localised concept. The property market in the northeast could very easily be in a different phase of the cycle to the market in the south-west of the country.
For an investor prepared to widen their geographic scope, there are always property investment opportunities to be found: that’s why the best places to invest in property UK are always changing.
(Find out more by downloading our eBook “The Property and Economic Trend Cycle”)
2. Do your property investment research
Investment research is your guarantee to success as a property investor. Don’t rely on the sales patter of an agent, glossy brochures, or inflated rental projections of local lettings agents. Prospective tenants will rent homes that offer them the advantages they want, such as:
- Local recreation amenities and retail facilities
- The local economy, job creation and work opportunities
- Infrastructures such as transport, schools, and municipal projects
You need to ensure that all of these property fundamentals are in place. A well-maintained, well-presented property will be easier to let and achieve higher rental income; but if the property is not in the right location for your target tenants then you’ll never get the rent you expect – and you could find yourself with an expensive folly in your investment property portfolio.
When it comes to finding the best places to invest in property UK, areas that attract middle-class and professional residents offer the best returns with the lowest tenant risk. Many of these locations are well established, but there is an enormous potential where areas are being regenerated. Previously unloved city centre suburbs are now becoming in vogue and sought after.
3. Will you let the property as furnished or unfurnished?
The decision whether to let a furnished or unfurnished property is an important one. It’s also one that may depend on your objectives and type of tenant you want to attract.
Furnished properties often attract a higher rental, but tenancies may be short term. Long-term tenants often prefer to bring their own furniture, especially soft furnishings such as beds and seating. If you want to rent to short-term tenants, basic furniture will probably suffice. For lets to the corporate market (short-term homes to company executives, for example) then quality furnishings will be needed. The student and executive market both expect Wi-Fi. Essentials for most include white goods.
4. Finding and managing your tenants
A lot of DIY buy-to-let landlords fall at this first hurdle. They think that an advert in the local press will generate huge interest in their investment property. Weeks later, the property is still vacant, and the property investor is bleeding money.
Not only do you need to know how to market your property (adverts on the Internet with quality photos are only a start point), but you’ll also need to ensure that your prospective tenants are suitable. Learning the straight facts on the tenant vetting process from Ezytrac Property Management will help you sort the wheat from the chaff. Be prepared to get references from previous employers, check out rental histories, and review credit ratings.
Once you’ve got tenants in your investment property, you’ll need to manage them. That includes fielding maintenance problems and collecting rent. You’ll also need a watertight tenancy agreement to framework all of this, as well as your other duties and responsibilities as a buy-to-let landlord.
5. Property maintenance
Maintenance is essential to keep your property in top condition. Doing so will maintain its rentable value and its resale value.
Great tenants will mostly look after your property as if it’s their own home, but it isn’t theirs, is it? However good your tenants are, the maintenance costs of an investment property are likely to be higher than those of your own home. Maintenance also includes the general wear and tear of property, on top of any accidental damage caused by your tenants.
Maintaining a buy-to-let investment property can be expensive, which is another reason to ensure the tenancy agreement covers all bases.
6. Cash flow, costs, and income
Property investment is a numbers game. If the figures don’t add up, you’ll never pass Go and collect £200!
Consider all the costs associated with buying and maintaining your investment property. You’ll have stamp duty land tax to pay, solicitor’s fees and mortgage set-up charges. You’ll also have maintenance and repair costs, landlords insurance, and maybe service fees.
Figure out your income and expenses and maintain a contingency fund for the unexpected. If the numbers add up once you’ve done conservative cash flow calculations, you’re on your way to profitable property investment.
Is a buy-to-let property investment right for you?
There’s more to property investment as a buy-to-let proposition than as a flip opportunity. Many buy-to-let properties begin their life in a property investment portfolio in a negative cash flow position. As time passes, rental increases and growth in value will kick in. Before you know it, your property investment will be meeting all your financial objectives.
As a buy-to-let property investment, returns will rely on proper research and diligent cash flow projections. Profit will also depend on finding great tenants and managing every aspect of the day-to-day running of your investment property. Contracting a professional and experienced property management company to do so for you will help to keep stress levels down and free time up.
If you have any questions or concerns about investing in property as a buy-to-let proposition in an investment property portfolio, feel free to contact one of the team on +44 (0)207 923 6100 or me to discuss your situation and concerns.