When it comes to profiting from My Update Studio rental property, the most important thing is to buy the RIGHT property at the RIGHT price. However strong the local rental demand and general availability of good quality tenants, it will all be to little use if your investment property is poorly located or unattractive and/or of the wrong type for the local market. So time spent surfing the net, building relationships with good local agents, and actually viewing properties yourself will be time well spent!
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Concentrating on yield
For years, property investors have been concentrating on potential capital growth and being prepared to accept fairly unimpressive net yields of 3% or 4%. Obviously, in a property market where there is little inflation, this will no longer do. Investors must look at what sort of yield a property might realize while still, of course, regarding the property as a long-term capital investment. The problem will be that you will need fairly serious capital to capitalize on this developing situation. There will still be mortgages available, but only to people regarded as a reasonably good credit risk. The days of the 90% and 100% mortgages are generally over for the foreseeable future, and in the end, that will not be a bad thing.
When the current boom began back in the ‘gold rush days of the late nineties, it was relatively easy to profit from buy to let. Landlords with the right properties could achieve a 15% yield along with phenomenal capital growth, and even a ‘so-so’ property could be profitable. Unfortunately, that is no longer the case. With the huge increase in property prices and the increasing competition between landlords for tenants, it’s become hard to get more than a 5.5% Net Yield, so more than ever, it’s imperative to buy the ‘right’ property.
Buying investment property Do’s and Don’ts.
I suppose these do’s and don’ts are not really hard and fast ‘rules, and there are always exceptions, but you would do well to follow these guidelines where practical to profit from your properties.
1. Don’t get too personal
Don’t buy an investment property just because you personally would like to live in it. Always look at it from potential tenants’ points of view. Also, try to avoid spending too much refurbishing the property. You may fall in love with a fantastic £20,000.00 kitchen and a £10,000.00 bathroom with taps costing over £200.00 each. Still, unless yours is an extremely up-market apartment, you will be wasting your money, as there tends to be a ‘ceiling’ rent for a given size flat or house in any given location.
2. Do research the market. For example, who will be your tenants?
Where and who are your potential tenants? For example, are there businesses and organizations locally with an ever-changing workforce, such as hospitals, universities, even TV studios where people are usually employed on short-term contracts?
Flats and house conveniently located for these kind of places should usually let easily.
3. Do be well connected
The adage, ‘Location, Location, Location’ is paramount for suitable buy-to-let property. It is always helpful for the property to be no more than 15 minutes walk from a station in a city like London, or at least close to other travel links such as motorways, bus routes, etc. Also, look for handy shopping facilities, bars, and restaurants, as these are always attractive to tenants.
4. Don’t fool yourself!
If you’re buying a leasehold property, always remember to factor in ALL the costs.
Here is a useful checklist:
- Check the Service Charges
- Check the Ground Rent
- Check the Buildings Insurance (usually included in the service charge)
- Remember that you may well have void periods, possibly up to two months in every 12 during change of tenants, etc.
- Remember repairs and renewal costs.
- Gas and possibly electricity safety checks can cost up to £150.00 a year, although you can probably spend less if you shop around.
5. Do pay attention to things you can’t control
If you are buying a flat, pay particular attention to the common parts, it’s no use ending up with your very own ‘palace’ set in a ‘slum’! This can often be an issue in the converted property. There can sometimes be no formal or, at best, an ill-defined responsibility for the maintenance and cleaning of common parts such as hallways, drives, and gardens.
Finding the ‘right’ property
So what is the ‘right’ property? Although it may be blindingly obvious, first of all, the right property is one you pay the right price for! Successful buying is all about return on investment, whether that be capital appreciation over the long term or rental return. If you pay too much, no one is going to pay you more rent to compensate you. This does not mean that you should always opt for the cheapest property. For example, I once saw a two-bedroomed terraced property in Manchester on the market for about £12000.00. I mentioned it to someone who knows that city very well and she asked me the name of the street. When I told her, she said the house was overpriced!
As a general rule, it’s better to look for good buy-to-let property in urban or suburban areas rather than rural ones, simply because there are likely to be far more people looking for rented accommodation in urban and suburban areas. In addition, the countryside and the shires are more attractive for people nesting, older people who are settling down or retiring – these folk usually choose to purchase rather than rent. For example, someone I knew used to rent a two-bedroomed property worth around £270,000.00 in a semi-rural location and paid around £800.00 per month. Many properties at that time that were costing less than this within inner London were returning over £1200.00 per month in rent.