What To Consider When Purchasing A Buy-To-Let Property
Unless you are a cash buyer, it isn’t the best time to be purchasing a buy to let property with the huge increase in interest rates over the last 12 months. However, it is still possible to make it viable especially if you purchase a property that you are going to renovate in order to increase its value. We’ll take a look at some of the things you should consider before becoming a landlord, everything from landlord legal advice to rental yields.
Property Valuation & Rental Yields
A big part of being successful in buy to let properties is the area that you decide to purchase in. Obviously, the property itself is important, it needs to be structurally sound but in terms of aesthetics that can always be changed for a fairly low cost. To get the highest rental yield from your property, your aim is to target the ‘young professional’ market, those who will commute to work from a suburban area, will have plenty of expendable income and won’t trash your property meaning that your overall profit will be higher.
The other side of the coin is to purchase a student property where the finish doesn’t need to be anywhere near as high end, but you will probably have to redecorate every year. While the income is lower in this market, it does tend to be more reliable as parents will act as a guarantor so will almost always be paid. The typical rental yield is around 7%, that should be your benchmark but with student accommodation you can make anywhere from 8-20% as you have many more people paying. With student accommodation you would typically have 4 or 5 people at least paying for a room, with young professionals you will only tend to have 2.
Problems With Tenants
The worst part of being a landlord is knowing that your income isn’t guaranteed and particularly at the moment when we are in the middle of a cost of living crisis, this can be a major issue. If you have a tenant who doesn’t pay monthly you will need to cover that cost if you’ve got a mortgage to pay. If they don’t pay for months on end you could find yourself needing to go to court to get them evicted. It is essential to have good landlord solicitors that can assist you in getting non-paying tenants out as quickly as possible so that you can get replacement tenants in and minimise your outlay. Aside from non-paying tenants, you can also have issues with damage to property which can cost just as much as non-payers do.
Do Your Calculations & Plan For The Worst
It is important to plan for things going wrong so that you are prepared in the event of it. For example, if the boiler breaks and needs replacing, do you have enough capital available to replace it? If a tenant leaves unexpectedly, can you cover the mortgage for a month or two? Generally, the higher your rental yield, the more breathing room you’ll have in the event that something does go wrong.