Buy to Let

With a few years of low interest rates under our belts home owners abound have invested in second properties to seek returns on the buy-to-let market. In fact buying second homes has never seemed so abundant as growing numbers of financial advisors push their clients towards bricks and mortar rather then the poor performing stocks and shares market. Add to this the scare of bad performing pensions and it is no wander that many have looked to second homes as their retirement future.

However the sheer number of those eager to enter the buy-to-let market has aided in a downturn in the obtainable rents for residential lettings. Put it more simply rents have fallen, with the Southeast and London being particularly hard hit. In fact so many new rental properties have come to the market last year that rents in some areas fell by up to twenty percent, a phenomena that has not been seen before. This is attributable to several factors but one in particular is that there are too many properties now on the market with fewer good tenants to go round. This has left many the new landlord caught out in the cold this winter with the proportion of properties in some areas being empty by up to thirty percent. Empty properties mean no rental income, a zero return on your investment and possibly a drain on your financial circumstances.

So has the property buy-to-let bubble burst or can you still make a healthy return on investment? One thing for sure is that property
will always be a good investment if you handle it properly. The Centre for Economic Business research has indicated that rental demand will nearly double inside of ten years. In addition the average house price is estimated to double in price from around £145,000 to £300,000 by the year 2020.

So opening that door to a good property investment can still be found you just need to have the keys for success.

Starting Off
The first thing to realise is that you should not any longer be looking for a short-term return. The truly successful buy-to-let investors are prepared to commit themselves to more than ten years. You need to decide on the type of property you are interested in buying and the type of tenants in turn, which it will attract. You need to do your research thoroughly, speak to other people who own property, read up on the subject matter and even go to property investment fairs. The better you understand the market and the possible financial returns the safer your investment will be. Certainly do not rush into purchasing before you are fully aware of the possible pit falls ahead. Look to spending six months researching a possible area for investment.

Raising the Finance
Know what you are buying and realise the additional costs of preparing a property to let. There are the added costs involved of maintenance and up keep. Remember tenants will most probably not treat the property as you would your own. Expect more wear and tear than usual, much of which has to be renewed between lets. You might well decide to go with an agent for management of the property whose fees are usually based around 5% of the monthly letting fee. Finders fees are around 10%.

Once you have thoroughly covered all the costs involved, obtaining a buy-to-let mortgage should be straightforward as there are over eighty lenders catering for this market. The rates are usually in line with normal mortgage rates.

Location, location, location
Look to spending up to six months to find an area with potential, one that is hopefully up and coming. Check out the price of property in the area and see what the average rentals are, also noting the number of empty properties available. A few visits to various estate agents in the area can sort this out. It is important to know how quickly the properties are being let too.

Location is essential if you want to see your investment grow. Thoroughly research the area you are considering, walking the streets and returning to it at different varying times of the day. A night visit is just as important, the street might look peaceful and enchanting by day light but could turn into a scene from Mad Max at darkness encroaches.

It is worth noting that not all properties increase in value, some in parts of East Manchester have fallen in value and remain difficult to sell.

If you are thinking of managing your own property then buying close to where you live is the easiest option.

Managing the property
Managing your own property is not difficult if you have the time, and are prepared to deal direct with the tenants and all this involves. Coping with the normal ongoing maintenance might not prove too taxing but it is the emergency repairs of failed central heating, loss of hot water or lost keys that might get you wound up. Sods law predicts these usually occur late at night, weekends or just as you are about to go on holiday. Additionally finding new or replacement tenants can prove frustrating and chasing late payments a real headache.

If all of this seems too demanding or alternatively you travel abroad a lot then the better option may to let an agent do the heavy work. On finding a managing agent ensure they seem focused on your needs. As a rule of thumb never go for the cheapest option as this usually means they are cutting corners in the paperwork. The last thing you need is an agent who does not take out proper reference checks on prospective tenants. Bad tenants can seriously damage your investment.

Meet face to face with an agent, decide whether you like them and more importantly can you trust them, they are, after all looking after your investment. A friendly agent with whom you bond will be far more successful in letting and managing your property.

Final Thoughts
Remember you may face some tough early months with your property on the rental market so check you have got sufficient cash to see you though. Void letting periods will always occur, the advice here is to try to minimalise these as much as possible. Be prepared to drop the rental price if the market requires. Better to drop the weekly rent by say twenty pounds and let the property than have the it empty for a month and loose a whole lot more!

As with all investment advice, you are advised to seek proper financial and legal advice at all stages. And please do not treat your property investment as a hobby, the buy-to-let financial market is a serious business which can, if planned thoroughly, offer you a well rewarded return.

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