Buy to Let – ensure you’re doing it right
If you’re buying your property with cash, then this won’t apply – however if your property investment is in the form of a mortgage, then you must ensure that you have the right type as this will be very different to the mortgage you have for your own property. The amount you borrow depends largely on the expected rent from the property, meaning that the rental yield is exceptionally important. We’ve spoken a few times about rental yields over the last few blog posts, so this helps explain it. The general guide is that the rent you expect to get from your buy to let property is 25% - 45% higher than the mortgage payment.
Through rental income, a good property investment should generate a healthy yield. In the current climate of low interest rates, a healthy yield is a must for the savvy investor. As we can see above, due to the increase in house prices and average income per household, rent prices have also seen an upward curve in most areas of the country over the last 10 years. So, whilst seeking investments with capital appreciation those that also offer an excellent annual yield make the most financial sense.
Often, you’ll find that some people choose to get a standard mortgage and then pursue renting out afterwards. This doesn’t usually work out in relation to the actual business viability itself as the mortgage payment will usually be higher in a standard mortgage. You’ll need to provide a higher deposit on buy to let properties (usually around 25%) and the interest rates are higher than for residential mortgages.
Ensure you’re in it for the long term as property investment is rarely if ever a short-term financial consideration. Property prices fluctuate and while almost always being a safe investment, properties take time to increase in value. There are exceptional circumstances where developments complete in an area after time and property prices do jump upwards, however it is far better if you plan for a long-term investment when it comes to property investment, particularly when it’s buy to let.
Don’t assume you need to invest in a big city new build
This is probably not the most obvious consideration, and therefore it’s a mistake that many investors make. Without an in-depth understanding of the entire UK property market, it’s easy to assume that city centre properties provide the best return on investment. Though, because there is so much competition for these properties, and the prices are so high, you’re unlikely to find an exceptional investment opportunity that hasn’t already been exploited.
Because purchase prices have usually been driven so high, the yields often aren’t as good as those that can be achieved in satellite cities. The same goes for new builds. Property investment conjures images of brand-new apartment blocks being built. But this is not the only type of property you should consider investing in. So, if you’re not going to invest in a city centre new build, what should you be looking for?
Renovations will be easier to visualise
It’s a good idea to invest early in a property development to take advantage of the financial benefits that come with being one of the first investors on a project. However, when investing early, you don’t want to leave yourself open to waiting years to be able to see any returns. A renovation project can often take less time to complete as it already has some structure in place before the development begins which makes it a perfect early investment opportunity.
Since a renovation is a development of an existing structure, you can also get a better idea of where your investment is going by attending a site visit and walking around the space yourself (instead of being shown plans of a new build that might be hard to fully visualise). Because land can be so difficult to purchase and develop in affluent towns and cities, it can be much easier to find renovation projects than new builds in these areas.
Location is so important when investing in a property and, by choosing a renovation, you’re more likely to find a great location for your investment. Renovations can also come with more character and designs that new builds often fail to replicate. As we said, you should be looking to invest in a property that you want to live in yourself and, when it comes to renovations and the interesting ways the original structures are incorporated, the character they have can often be unrivalled.
Location (more information)
Investing in developments outside of city centres can be a fantastic way to spread and diversify your property investment portfolio. Remember the quote from Ray Withers earlier? - “There are less well-known but equally promising and enterprising regional towns that benefit from low entry points, the availability of strategically located development sites and weak competition from existing rented stock”. The ‘low entry points’ and ‘weak competition’ make towns such as Warrington and smaller cities like Preston prime locations for investment.
In early 2018, This is Money listed Preston’s PR1 and Blackpool’s FY8 as the 8th and 10th best postcodes (outside of London) in the UK for rental returns, respectively. Moreover, Paulina Carl of Buy Association had this to say: “Preston was awarded city status in 2002 and is now the third largest city in the North West. It is well located as a major stop on the West Coast mainline with direct routes across north west England. With Manchester 40 minutes away and Blackburn only 17 minutes away, Preston has strong connections with the whole region.” If you can invest in a low-competition area such as Preston, and in a property with a quick development schedule, like a renovation, you will find yourself with an investment that will deliver returns as quickly as possible.
As well as competition, you want to ensure that the area in which you are investing is an up-and-coming property hotspot. When you see commercial and residential investment consistently being made in a specific area, you can be sure that the area will soon become a thriving, affluent place for your own investment to flourish. Along with the low competition, Preston is one such area that has seen a huge influx of investment in recent years and has been named the best area to live and work in the North-West, in the Good Growth for Cities Index by Demos-PwC, for the second year in a row. So, when completing your property research don’t forget those towns and locations outside of the major cities.
Your strategy for success
A survey by Endsleigh Insurance Services Limited found 79% of all landlords questioned estimated they spent between £200 and £1000 in property maintenance in a year, with nearly 40% of landlords saying they spent between £200 and £500 year. As revealing as these figures are, the true cost of maintenance also includes the time spent organising and checking on maintenance issues. When choosing your investment property, there are certain steps you can take to ensure that you keep the management and maintenance to a minimum and make it the easiest investment possible.
Invest in a Purpose-Built Property
One of the best ways to avoid the time and costs of bringing the property up to a habitable state for tenants is to invest in a purpose-built property. Simply, if the property is already fit for purpose when you invest, you can move tenants in and start receiving rental income right away.
Choose a Developer That Can Manage Your Property
To keep your investment as simple as possible, it is wise to invest in a property with minimal maintenance. However, there are likely to be some occurrences of work that’s required to keep the property in a habitable condition. The solution to this is to invest with a developer who will look after the maintenance of the property for you. If the work is within your warranty period, The Heaton Group will take care of all the work and any incurred expenses. If the work is outside of that warranty, you can still rely on us to offer a competitive quote and take care of the maintenance for you.
Find Letting Agency Related to Your Developer
When looking to invest in property the easy way, you should consider using a letting agency to help find tenants for you. If you can, choose a developer that has an in-house letting agency. This will make the process of putting your property on the rental market quick, easy and hands-free. 6 years ago, we started our own letting agency to do just that, so you can sit back and let the rent roll in while your property is taken care of. Property investment has never been easier.
The Heaton Group have several renovations underway in Greater Manchester, Preston and Bolton. To find out more then get in touch and speak to a member of our team.