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12 Steps to Finding the Perfect Buy-to-Let

Investing in property is one of the most popular ways to make a long-term investment.  Buy-to-let investment can be an effective way of bringing in regular income and with the right property and a good mortgage deal, it is possible to achieve a rental yield between 5% and 10%. However, whilst buy to let can be an excellent investment, there are risks to consider and multiple checkpoints to get through before you commit to a buy-to-let mortgage and becoming a landlord.

Before doing anything, you need to take some time to understand the housing market and that means being prepared for the financial risks as well as the financial rewards. When you invest in buy-to-let, it means committing tens of thousands of pounds to a deposit and taking out a mortgage. You need to go into property investment with your eyes wide open.

1. Set clear objectives

One of the risks of buy-to-let investment is picturing yourself living in the property. It is important to remember that you are not renting the property and consider instead what tenants might be looking for. Set objectives by envisioning your ideal renter.

Are they students? If so, they will be looking for something simple, comfortable and cheap.
Are they young professionals? They are more likely to be looking for a stylish, open-place space that is great for entertaining.
Are they families? They will want a safe place to bring up children.

Location is everything. Look out for places with schools, transport, jobs, access to motorways. You will need to be able to match the type of property you can afford with people in the area and your ideal renter.

2. Do the maths

Don’t get too carried away by the excitement of capital gain. You need to crunch some numbers first. Speak to a lender about your borrowing position i.e. what size loan you qualify and how much interest you will need to pay.

3. Research supply and demand for property

People who are looking to make a buy-to-let investment should research the demand and supply for property in the area they are hoping to invest. According to research the best buy-to-let areas for 2018 are:

  1. Manchester
  2. Colchester
  3. Luton
  4. Rochester
  5. Southend-on-sea
  6. Hull
  7. Romford
  8. Norwich
  9. Leicester
  10. Ipswich

It’s also a good idea to research what your competition is doing using websites like Right Move. You will also be able to find out the going rate for certain areas.

4. Sign up for a Local Authority accreditation scheme

An NLA Accreditation is an excellent way for landlords/letting agents to improve their knowledge of the private rented sector and to demonstrate to their tenants that they are a professional and responsible landlord, dedicated to raising standards across the private rented sector. By giving them a market advantage over unaccredited landlords, accreditation schemes reward landlords who provide good housing management and maintain strong property standards.

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5. Find potential properties

Now that you have a strong idea of who your tenant is, what kind of property they are looking for, the area they want to leave, how much you can expect to lend and how much you can expect to borrow, it is time to hunt for properties. If you are just starting out, then it is probably a clever idea to avoid fixer-uppers until you have some more experience. When you find properties that appear promising, make sure you calculate what financial returns are possible…

6. Calculating returns

The key lending criteria for a buy-to-let mortgage is how much rent you are able to charge. Lenders will look for a potential monthly rental income of at least 125% of your monthly mortgage interest payments. To get an estimation of how much rental income you could achieve, you can investigate local property listings and speak to local agents to find out how much similar properties are on the rental market for.

To ensure you make a profit, you will want to work out how much income you can expect to generate from an investment property. The yield figure is the annual rent you earn divided by the property value. For example, a house worth £300,000 with an annual rent of £24,000 has an 8% rental yield. But don’t forget to factor in expenses such as maintenance, insurance, mortgage repayments and letting agent fees.

7. Securing a mortgage deal

Once you have found the property, the next step is to secure the finance you need in order to purchase it. Banks and building societies are not the only places to secure a buy-to-let mortgage. It would be a good idea to speak to an independent and dedicated buy-to-let mortgage broker when you are looking. They can tell you what deals are available and help you decide which one might work the best for you.

Buy-to-let mortgages are generally more expensive and require a higher deposit, typically a minimum of 25% but a deposit of 40% or more will almost certainly give you access to better deals and getting a great mortgage deal is crucial to maximising the return on a buy-to-let investment.  

Buy-to-let mortgages are usually interest-only mortgages which means that once the term is complete, you may need to consider selling the property. Consult with an independent financial and property specialist on your exit strategy.

8. Make an offer

You’ve got the deal!

You are not relying on selling a property, in order to purchase a new home. As such, you represent less of a risk of a sale falling through and it puts you in good stead to negotiate a discount with the vendor. A landlord who is looking for a quick sale may be more willing to accept a lower cash offer.

9. Instruct a buy-to-let survey

As we said earlier, you need to go into property investment with your eyes wide open which is why it is important to organise a buy-to-let survey of the property. You will want to know everything you can about the property before entering negotiations. A chartered surveyor can provide you with a detailed analysis of the property, drawing attention to any issues which may affect how easy it is to rent in the future. After the survey and negotiations, you will want to organise specialist buy-to-let insurance and have an EPC available.

10. Start advertising

It’s time to attract tenants. Write a compelling description for readers which gives insight into the property, area and lifestyle on offer. Keep in mind who your audience is. If your ideal tenant is a family, talk about local schools and community amenities such as doctors, whereas if your ideal tenant is a young professional, highlight the bars and restaurants and proximity to public transport. If you decide to use a letting agent, they will be able to help you advertise and conduct viewings but it may set you back a few thousand pounds. Some letting agents will also perform credit checks and organise tenancy agreements and inventories.

11. Make an inventory

The rental inventory documents the condition of your property and its contents at the start of any new tenancy. There are plenty of free inventory templates for landlords online and including photographs will help you to monitor any changes throughout the tenancy. The inventory should also include fixed features such as walls, ceilings, cupboards and doors, as well as paintwork and wallpaper. If you and your tenant agree that unreasonable damage has occurred, you will be able to use the tenancy deposit scheme so deductions can be applied. If you are unable to agree, your inventory includes images showing the original condition of your property.

12. Sign contracts

Once the deposit has been secured in the tenancy deposit scheme, it’s time to sign the contracts and hand over the keys.

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