5 Essential Tips for investing in buy-to-let
Buy-to-let is one of the most common strategies among first-time property investment offering both a steady cashflow and the opportunity to benefit from capital gains.
Every property investor should know how this type of investment works, so I’ve put together this quick list to share with you 5 essential tips we go by at Premier Property for a successful buy-to-let investment.
1. Choose a promising area to invest
Finding the right area to invest in is one of the most important steps in any property investment, and buy-to-let is no exception.
You always want to invest in areas with rising house prices to ensure you benefit from capital appreciation, but with a buy-to-let investment the bulk of your returns will be in the form of rent, so you need to find an area that appeals to tenants as well as looking good on paper.
These 3 factors have a major impact on appeal to almost every potential tenant:
- Strong job market.
Sounds obvious, but your tenants will need somewhere to work. Make sure there are plenty of employers in the area, and think also about the type of jobs available and their location:
What demographic do those jobs appeal to?
What level of income do you expect from that demographic?
Are major employers easily accessible by public transport, or will your tenants need their own car to work there?
- Public transport.
Public transport is a major concern for just about everyone. It is of course especially vital to the increasing numbers of young people who do not own a car, but can also be a deciding factor for single-vehicle households and families with children not old enough to drive.
Make sure there is a bus service providing easy access to shopping and employment areas, as well as rail links to any major neighbouring commuter destinations.
- Local conveniences.
The most obvious part of this is looking for locations with shops within walking distance for basic grocery shopping. While having a full-size supermarket within reach is not always possible, make sure the basics are there as nobody wants to have to get in the car just for a pint of milk.
This is also where you can start to think about your target demographic and any local businesses that might appeal to them. Know the locations of local gyms, bars and parks, or anything else that could add value for your target market.
For example, if you are targeting young families then a school with a good reputation in the vicinity will add a huge amount of value and appeal to your property.
Want to lean more about finding the perfect location for your next property investment? Watch this quick video where I share with you how to find those goldmine areas!
2. Identify a target market
Now that you have found an area to invest in, it is time to think about who will want to live in your area. A lot of the research you have already done on jobs, schools and transport is useful again here, so use that information to narrow down your target market and what kind of property they need.
A young professional might happily live in a studio flat in a convenient location, whereas a family with 2 kids is going to need at least 2 bedrooms, and probably a parking space as well.
Many investors miss this, and it’s a common mistake. You want to make sure your property is right for the area and right for the type of person(s) living there too.
3. Research your potential property
Once you have found the right location, and you know your target market, you need to do the proper research on suitable properties. Get answers to these 5 questions:
- Who owns the property? Is it owned by a landlord or the current occupants?
- Are there any issues with the property?
Get a full survey of the property to identify any structural problems or services faults.
You should also think outside the box to find problems that could put off tenants like noisy neighbours, nightlife or congested traffic.
Visiting the property at different times of day is often the only way to spot these problems.
- Which fittings and furnishings are included in the sale?
- What warranties, guarantees and safety certificates are currently associated with the property? Will these transfer over to you?
- If the property already has tenants, what are the details of their contract? When does it end? What rights do the tenants hold?
Want more tips on doing your due diligence on a property? Watch this clip where I talk about getting your due diligence right every time.
4. Do the maths on rental yield and costs
While you always want your investments to benefit from capital gains in the long term, in the shorter term your profit will come from the difference between your rental yield and ongoing costs.
This includes costs for maintenance, advertising and taxes, and you should also consider the value of your time in staying on top of these. If you are hiring someone to manage the property for you, you of course need to factor in that cost as well.
5. Haggle on prices
Be confident and professional in negotiations, but don’t be ‘pushy’ – you want the seller to feel good about the deal.
Now you know some of the essentials to a successful buy-to-let investment, want to know what NOT to do? In this video I discuss a couple of issues that can prevent you from achieving property investment success.
If you have any more buy-to-let tips to share with your fellow investors, join the discussion in the comments section below!