8 Simple Rules For Buy-To-Let Investors
By Andrew Vaughey | July 19, 2008
Author: Parmdeep Vadesha
Buy-to-let is an easy and profitable long-term investment. However, it comes with no guarantees. While rewards are great, there are also financial pitfalls that should be avoided. If you plan to start off your property investment with buy-to-let properties, it will take a healthy dose of common sense, a risk-taking attitude and these eight simple buy-to-let rules:
1. Do your homework. First and foremost, ask yourself if buy-to-let is really the kind of investment you want. Know the risks and the benefits by reading up on related literature and more importantly, by asking investors already in the business about their experiences and advice.
2. Location, location, location. As with everything in the property market, location is critical. Choose a promising area, which means a place where people would most want to reside in for a variety of reasons. Factors to watch out for are accessibility to good transport, schools, hospitals, and other residential areas. Also, consider the appeal of the town and the neighborhood.
3. Shop around. As they say in property, fall in love with the deal and not with the property. Don’t let your own personal taste cloud your judgment in choosing the property. If you plan to finance your investment by putting up a mortgage, consider the offers of financial institutions other than the traditional bank.
4. Pencil-push. Once you have decided on the property, write down the cost of the house and your projected rental income. Once you have this figured out, ask yourself: Will the investment work out? Can you afford the mortgage payments if the property will remain vacant for a few months? All these issues factor in when deciding rental price and terms.
5. Put yourself in your potential tenant’s shoes. It does not necessarily follow that if you would want to live in a particular property, your potential tenant would feel the same. Similarly, do not discount a property just because you cannot imagine yourself living there. Moreover, think about your target tenants, their needs and preferences. For example, students would prefer a house that is cozy, comfortable, easy to clean and within their budget. Young professionals generally like modern and stylish spaces, nothing overbearing and opulent. If your target tenants are young families, they generally prefer wide, blank spaces since they have plenty of belongings and very specific needs.
6. Don’t put all your eggs in one basket. We have all come across stories of buy-to-let millionaires with huge property portfolios and even bigger vacant and un-rented properties. Don’t be overly ambitious and build your buy-to-let portfolio surely. Invest for sustainable income and not short-term capital growth. Over time, use rental income as a deposit for future investments.
7. Widen your horizon. Though you most probably know your town inside out, investing in a property near your residence is not always a good idea. However, an obvious advantage of having your properties close by is that you are able to keep an eye on it. It is far more important to look for properties with good commuting links as an accessible transport system is very important for families and students.
8. Hope for the best and expect the worst. As with all investments, be sure to carefully weigh the positive and negative aspects before jumping in. Though house prices are relatively stable, they could depreciate. Furthermore, not all properties are rented out easily. Even in prime and popular areas, properties could remain vacant for a few months. Devise a back-up plan if ever this situation occurs. Also, make sure that you are financially able to conduct major and minor repairs needed on the property.
Topics: Andrew B Vaughey, Andrew Barrett Vaughey, Andrew Vaughey |
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