“Buy-to-let” is, nowadays, a hugely popular form of residential property investment, in which a property is purchased – usually with the aid of a “buy to let” mortgage – by a private individual, with a view to letting, or renting out, that property to a tenant.
The introduction of “assured”, or “assured shorthold” tenancy agreements – giving landlords and tenants the freedom to devise their own rent levels, by negotiation – as a result of the 1988 Housing Act, and the subsequent growth in the number of mortgage products, specifically tailored to the requirements of private landlords, at attractive rates, has increased the appeal of owning rental property. A “buy to let” property can provide a source of regular, monthly income, in the short, or medium, term, and may have the potential for capital growth, in the long term.
Property Investment
If you are considering investing in property, and becoming a private landlord, it is important that you adopt the correct mindset, from the outset, and approach the whole venture in a businesslike manner. Market research, for example, is a prerequisite of any business, and property investment is no exception; you should carefully research – either yourself, or via a specialist letting agent – the market, and the area, in general, where you want to buy your property.
If you do decide to do this yourself, a certain amount of “legwork” will inevitably be involved. You will need to contact, for example, estate agents and local newspapers for information regarding the supply of, and demand for, rental accommodation, and you may need to spend some time in the area in question – by day, and by night – to establish other information, such as traffic, or noise, levels.
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Property Types
You will also need to take a fairly objective view of any property, in relation to the type of tenant which you are hoping to attract. Features that are attractive to you, personally, may not, necessarily appeal to prospective tenants, and it is also important to remember that it is, indeed, tenants, and not buyers, that you are hoping to attract. A family, for example, seeking rental accommodation, is likely to already have many possessions and belongings, and will appreciate a spacious, unfurnished property, perhaps with some form of garden, if there are young children in the family. Students, on the other hand, are likely to be seeking a practical, comfortable – but not overly so – and furnished living space.
Locating, and vetting, prospective tenants can, indeed, be one of the more time consuming and difficult aspects of becoming a private landlord. References, from a bank, or other financial institution – indicating that an individual is “financially sound”, or that you should “exercise care” in your dealings with him, or her – and, if possible, from a previous landlord, should be sought, before allowing a tenant access to a property.
The type, condition, and, particularly, the location, of your chosen property are also important factors in determining its appeal to prospective tenants, and, perhaps as importantly, the associated costs, in terms of general maintenance, and the like, that you will incur.
You should consider carefully the proximity of local amenities – schools, shopping and public transport facilities, for example – and how important these are, to your target tenant group. Young, professional people, or commuters, for example, are more likely to be interested in public transport links than schools, while the reverse may be true of a young family, with school age children. As a rule of thumb, towns and cities with a mixture of economic activity – with, perhaps, a university, and/or a business park – may present more varied, and better, opportunities for private landlords.
“Buy to let” property “hotspots” in the UK, include, unsurprisingly, London – the north London suburb of Highgate being one particularly popular area – the south east of England, and varsity towns of Brighton, Bristol and Oxford. There are, however, emerging areas throughout the country, including the Liverpudlian suburb of Childwall – close to a motorway and two universities, and only 45 minutes from Manchester – and Holbeck, just to the south of Leeds’ city centre.
Recent studies have shown that terraced properties, and two bedroom flats, or apartments, are currently the most sought after by property investors, but whichever property type you ultimately choose, it is worth bearing in mind that older properties, or those with large gardens, generally require more attention, and therefore incur higher maintenance costs, than other properties.
Remember, too, that you will need to have finances available to cover buildings insurance – and, possibly, contents insurance, if the property is furnished – interest rate rises, and “void” periods, when the property is empty, between tenants.
Mortgage Types
The choice of “buy to let” mortgage will be – as is the case with a standard residential mortgage – between a repayment mortgage and an interest only mortgage. Fixed, or variable rate mortgage products are available, as are flexible, capped, or Bank of England base rate “tracker” mortgages, but the main differences between these products and a conventional mortgage are that interest rates are slightly higher, a larger deposit, possibly up to 25% of the total property value, is required, and that a mortgage decision is based on the projected rental income from the property, rather than just on the income of the buyer.
Conclusion
Investing in property, on a “buy to let” basis, can be more time consuming, and riskier, than many other forms of investment, and any long term capital gains may be subject to the vagaries of the property market, which are often difficult to predict with any accuracy. As such, becoming a private landlord should not be viewed as a means of making money easily, or quickly, but more as a medium to long term investment. In addition, private landlords need to cast a critical, and objective, eye over any potential property, and its location, to determine its suitability, for investment purposes.
Carefully researched, and selected, however, investment in a second property – and, indeed, in further properties, for those who wish to build up a property portfolio – can provide substantial financial rewards, in the long term.
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