Letting a Property
Letting a property can be a great investment but like all investments a fair bit of groundwork should be undertaken first before choosing a property. Of course this may not always be possible if you already own the property but this guide is for those who are actively seeking to buy with intentions of letting.
The saying fail to plan, plan to fail, although not strictly true for renting property given that many potential landlords have successfully purchased a property without doing prior research or even looking at the property first it is worth remembering that buying a property to let is an investment and a large investment at that, where a bit of groundwork can really help you avoid the pitfalls and maximise the potential return.
Is investing in property worth it?
Before purchasing a property it is worth considering alternative forms of investment and ultimately the return on investment you are likely to receive for any investment period. Many people look at buying properties when rates are low and the stock market is volatile but when you buy a property you are effectively tying up capital and the property could drop in value in the future. If there is another interested party i.e. a bank or building society their interest rates will change at some point and as others have found out in the past high mortgage rates on large loans can eventually outweigh the benefits of making the investment in the first place.
Alternative savings accounts, although offer very little return during periods of low rates at least they do still offer a return and there are many tax free savings options available on the market today which involve next to no effort compared to that of becoming a landlord.
Where are you willing to buy a property?
When deciding on whether you want to buy a property to rent there are a lot of variables that come into play like a jigsaw and by answering certain questions you will have a clearer picture of what is right for you.
How far are you willing to travel? If you plan to be a hands on landlord and deal directly with the tenants and any problems that may arise then how far do you want to be from the property. Once you know the demographic area you can then focus on the local property market for that region. Bringing in a letting agency to manage the property will allow you to widen your target area and they will be able to deal with matching up suitable tenants, handle any problems such as the boiler breaking down and some will be able to manage all aspects of letting a property. However as with all expertise and services they will charge and this will need to be accounted for when costing the investment.
Depending on an agencies involvement they could just be responsible for finding suitable tenants and collecting the rent but you still carry the responsibility for maintenance or resolving problems such as sourcing a plumber or electrician.
Property value is often affected by desirability at that point in time. Cheaper properties are normally located in less desirable areas but that’s not to say that it will stay less desirable. The villages where once younger generations could not wait to leave and head for the city are now seen as highly desirable and preferred by the same younger generation as an ideal place to raise a family away from pollution, traffic and other factors associated with living in a city.
If possible try to gain knowledge of the area and of any future developments, remember that some developments can have a positive impact on an area such as a new school or bypass and some can have a negative impact such as becoming a flood risk area. There are also factors that can affect the value of an individual property such as new buildings or homes being built in surrounding land which as a consequence affect the view or appeal or a property.
It is worth visiting several different estate agents as they should be able to tell you which areas are the most desirable and some have a database of tenants waiting to rent. You may be able to target specific areas or even streets that look to offer real value as a rental property, maximising your potential return.
The kind of tenants you want could impact the kind of property you buy
If your thinking of becoming a landlord then you may have already thought about the kind of tenants you would like. Obviously the location and size of the property are things that factor in to the attractiveness for potential tenants. What is access to local schools like? which are the best schools in the area? How near are public transport facilities? How far are you from main roads and motorways? What are the Crime rates like? If your targeting professional working couples or families think about their needs and which areas would suit them the most, if you are targeting students, how far are you from their college or university and which areas have public transport routes that run directly or near to their academic institute.
Different types of tenants may also have different requirements besides just location and local facilities. For example students may require a fully furnished property that they can move straight into and be setup ready to pursue their academic studies the following day bringing with them just a suitcase of personal possessions to make their temporary accommodation a home from home. Families or couples may have a lot of their own furniture and require an unfurnished property. They may also be looking for a long term rental agreement.
Other factors to consider
There are lots of things to factor in to determine whether an investment is likely to be profitable, some can be determined early on such as fixed rate mortgage repayments, landlord insurance and to some extent the cost of renovating a property to the standard you require for letting. There are however other factors to consider such as what if the property remains empty for a month or two, do you have a financial buffer to cover these circumstances.
Rental income is taxable and it is advisable to see a tax advisor to see how this affects your circumstances especially if you have other sources of income. Some costs can be put forward as expenses to offset against this including the tax advisors fees.
There may be times especially during a recession where tenants struggle to pay the rent, how understanding can you afford to be? Many insurance companies now offer rent guarantee insurance to protect you against tenants who fail to pay.
You may be lucky enough to know other people who rent out properties, what are their experiences both good and bad, what advice can they give you, the more people you know and can get advise from the better prepared you will be and determine whether being a landlord is right for you or not.