What to look for in a Buy To Let Property
Having read an article recently (below) its clear that despite recent Stamp Duty Changes that property is still a very viable and potentially lucrative investment.
With bank rates still low why not take advantage of the low mortgage rates?
After all its not as if your money is earning you much in the bank?
Of course if you can afford to get on to the up and coming areas of London then this is where the big money is being made.
One of our clients bought a flat in Brixton, South London 2 years ago. An area historically considered one to miss, however with the tube links and the pressure of London expanding to the outer reaches it was an affordable, if you call it that at around £330,000, link to working in the city.
It was a newly built two bedroom flat WITHOUT any parking but Brixton is well on the way to becoming too expensive already!
Now two years later our clients situation has changed and they are now moving back out of London to East Anglia and are in the enviable position that in just this short space of time have added nearly £300,000 to the value of their flat and can easily afford to move out AND keep their investment and watch the money keep coming in.
So clearly location, location, location is a major factor in what to look for, but what else do we need to consider?
Rental yield has to be a consideration, and what I mean by this is the percentage of rental return you get compared to the purchase price.
A very crude example of how to do this is (£monthly rental figure x 12) divided by purchase price, for example:
£650 x 12 = £7800
£7800 divided by £140 000 = 5.2%
A common mistake that so many people make is taking in to consideration their own personal thoughts on the property, if they don’t like it, they won’t buy it.
A lovely little cottage with a picket fence is also going to be very popular with non BTL (Buy To Let) purchasers so the price will be higher, granted it may rent out for £25 more than a poorly presented neighbour but if the same neighbour is the same size in the same area it might be £20,000 cheaper because it doesn’t have “that feeling”
But using the same yield calculation above, that pretty house could cost you 1.5% off your yield!
Other factors to consider are obviously the price, the condition, what work needs to be done etc but if you use only one rule, use the Yield.
Remember that Ugly Duckling in the nursery rhyme, your next investment could be that majestic swan.