What is Buy to Let Property Investment?
Buy to let means buying a property to rent it to a tenant or group of tenants. Investors can purchase their property outright or choose to take on a buy to let mortgage. The first step is buying the property, and then the investor must find a tenant to live there and pay rental installments.
The investor earns an ongoing return from the rental payments. Eventually, investors can pay back their investment in total, using the rental returns. Investors can also make money from selling the property, for a profit, later down the line. When you’re starting out with buy to let investments, the following tips may come in handy.
Prioritise High Rental Yields
When you are pursuing buy to let investments, you should prioritize high rental yields. A rental yield means a percentage that indicates the (estimated) returns. The higher the percentage, the better the returns. So how are rental yields calculated? You take the annual income from a buy to let property and then divide this figure by the purchase price. If you’re serious about making some excellent profits on your investments, rental yield is one of the most critical areas to pay attention to.
Determine The Demand
When you’re choosing a buy to let property, you’ll need to consider the demand in that particular area and market. The last thing you want is to end up with a property with too many void periods, whereby you cannot find tenants. To research the real estate market, try taking a look at the following resources.
- National Real Estate Investor: This online magazine focuses on analysing trends in the real estate sector. Here you can find insightful predictions about current changes that may impact the market.
- Inman: Inman is one of the leading real estate magazines, here you’ll find all the latest market trends, updates, and tech. As well as this, there are educational blogs and expert interviews.
Consider Capital Growth
When you are choosing a buy to let property, it’s essential to consider capital growth. Capital growth means how much the property increases in value over time. Your priority now may be to rent out your property, yet this might change in the future. When choosing a neighbourhood, prioritise areas where the house prices are likely to rise in the next few years.
It may sound simple, but choosing the right neighborhood is the difference between making a profit and making a loss. There’s always the option to purchase a ‘fixer-upper’ and conduct a few renovations before renting the property. If you decide on this option you’ll need a talented team of contractors behind you, whether it’s independent scaffolding services or an efficient team of plasterers!
Choosing Your Buy To Let Areas
Following on from the point above, you’ll need to research the best areas for buy to let properties. According to Zoopola, ‘Middlesborough in North Yorkshire and East Ayrshire, North Ayrshire and Inverclyde, all in Scotland, offer the highest rental yields in the UK.’ When you are choosing a buy to let area it’s important to pay close attention to rental yields.
Determine Your Strategy
You’ll need to determine your buy to let strategy, this essentially involves deciding who your target renters are. Once you’ve determined this, you’ll be in the best position to choose a property and a neighborhood that’s a good fit. Let’s look at a few of the options:
- HMO: HMO stands for ‘House in Multiple Occupation.’ It’s basically a property that is rented to a group of tenants, rather than one. Student houses, for instance, are the main example of an HMO property. These investments are often favoured because they can generate larger sums of money. Having said this, HMOs can be more admin and usually require the assistance of a property manager.
- Single-let properties: The other option is to rent your property on a single-let basis, for example, to a couple of working professionals or to a family. You can still earn a significant amount on these properties, depending on the area.
Understand Your Renters
Following on from the above point, it’s important to have a great understanding of your tenants and their needs. Conduct thorough research to determine which features they require in a property and in a neighborhood. Tenant preferences can include many different things, whether proximity to universities, workplaces, schools, or local amenities. Create a profile of your ideal tenant, including their budget, needs, and rental concerns. The more information you have, the better you can make the right judgment on a buy to let property.
Get Yourself Insured
You’ll need to get landlord insurance, which is a home insurance package that’s designed for rental accommodation. In most cases, landlord insurance will include one (or more) of the following:
- Contents insurance: A contents insurance package will cover any items that you own inside the house, (from the furniture to the carpets).
- Liability insurance: Liability insurance offers legal cover if, for any reason, you are taken to court.
- Buildings insurance: A building’s insurance package will cover any damage that occurs to the property’s structure or features.
Consider A Property Management Service
To support your buy to let projects, it can be helpful to use a property management service. These companies handle all aspects of managing the property, from the maintenance to the marketing and admin. If you’re especially interested in earning a passive income, a property management service is just what you need. With a company to manage your investment, you can sit back and earn money from home!
The most important thing to do is to conduct thorough research into the research estate market. You’ll need all the info you can get on the latest trends, areas with the best yields, which prices to expect, and so on. The more research that you perform the better equipped you’ll be to make wise investments.