What to consider when investing in a buy-to-let property, by Nick Eley
With the private rental sector accounting for a fifth of all UK households, it’s no surprise that being a residential landlord can be very rewarding. Nick Eley, partner at Watsons, offers his advice on what to consider before making an investment.
Let’s consider the huge growth of the private rental sector, which now accounts for 20% of all households in the UK. Being a residential landlord can be very rewarding and can represent an attractive investment option against other asset classes, but there a few things a landlord has to consider before investing in a buy to let property. Equally you may have inherited a property with no experience of the rental market or letting a property, so the considerations will be exactly the same.
If you are looking to buy an investment property, an important decision during the process is the type of tenant you would want to rent your property to, and how much you’re going to rent it for. To understand this, we recommend talking to a local letting agent in your chosen area. An experienced agent, like Watsons, will know how a specific market is performing and/or suggest other areas to consider. They will also have an understanding of the profile of tenants renting in the given area, as well as the rent levels being achieved.
Whether you decide to target families, young professionals or students will determine what type of property you’ll ultimately want to invest in, what the rent might be and subsequently, the rental yield for the investment.
Rental yield is the return you are likely to achieve through renting – eg if the monthly rent is £2,000 and the property is occupied for a full year, the landlord will receive £24,000 per annum. If this sum is greater than the cost of owning, managing and maintaining the property, then you will make a profit. If the return is only 5%, this might not cover mortgage payments if you have borrowed to invest.
Capital growth is the value by which a property increases in value over a period of time. However, be aware that the value of a property can also depreciate. The percentage of the original purchase price by which the property has increased will represent the return on the investment from a capital growth point of view. To work out capital growth, you will need to compare the price you originally paid for the property with a current market appraisal. Any decent estate agent will be able to carry this out for you.
For landlords to protect themselves and their property investments in the long-term, it’s important to understand the skills, knowledge and experience of your letting agent. There are over 200 pieces of legislation directly or indirectly impacting on the rental market, with the most recent being the Tenant Fee Ban. Your letting agent must be part of an independent redress scheme and many will display the ARLA Propertymark (Association of Residential Letting Agents) brand. These agents, like Watsons, are experienced professionals who undertake regular training and employ best practice.
Lastly, it’s very important to look after your investment. After all it could be generating you an income for years to come. Ideally, agree a maintenance schedule with your letting agent, whereby you focus on the upkeep and maintenance of your property over an agreed period of time – both inside and out. Regularly decorating and replacing carpets may seem obvious, but even with the best tenants, fair wear and tear will take its toll on any property, so regular inspections by your letting agent will ensure this is maintained, potentially encouraging your tenant to stay longer. If vacant, increase the rent level and therefore your return on investment and add value to the property, particularly if a more significant improvement is required such as replacing a kitchen or bathroom.
For more information, contact Watsons Lettings & Property Management Team in Norwich on 01603 751555 or by email at email@example.com, or the Cromer office on 01263 514256 or at firstname.lastname@example.org.