How to choose a Buy to Let Property
We have just came back from viewing 2 flats for sale. Either may make a good Buy to Let Investment, so with a limited budget, how do we decide which, if any of these advertised But to Let properties to buy?
This simple and easy to follow guide will help you to work out which property is the best investment. So here are the main points you need to consider when looking to buy a buy to let property.
1. Get a copy of the schedule prior to visiting the property
Most estate agents either post out or make the property schedule available for download. Use the schedule to get a good understanding of the property for sale. E.g. do you think it’s a one bedroom apartment whilst it’s actually a 2 bedroom?
Look out for typical estate agent lingo, slang, jargon and other untruths such as:
- Charming: A great word to describe a property which is tiny or small.
- Compact: You can eat your breakfast whilst you in the bath whilst watching the TV in the living room.
- Deceptively Spacious: You will have been very deceived by the estate agent if you think the property is spacious.
- Ideal for Buy to Let investors: There is no way you would want to live in this dump yourself, but there may be some desperate renters who might be interested.
- Original features:No maintenance or improvements done on this property since it was originally built in the Victorian era.
2. Get a copy of the Home Report prior to visiting the property
The Home Inspection report is produced by a professional surveyor, so is likely to highlight issues you may not spot on a quick inspection visit.
3. Work out the purchase cost and rental income before visiting the property
Before visiting the property, have an understanding of how much the place will cost and how much the place with rent for. This helps you calculate the yield of the buy to let property.
The gross yield, is the percentage return you make on the money you put in. This is calculated by dividing the annual income by property value, then multiply by 100. Gross example:
- Purchase price = £40,000
- Monthly rental = £350
- Annual rental – £350 x 12 = £4,200
- Gross Yeild = £4,200 / £40,000 x 100 = 10.5% Gross Yield
To workout the Net Income, take the rental income and subtract all the associated costs, such as mortgage interest, letting agent’s fees, building insurance, repairs and and maintenance. Net Yield example:
- Purchase price = £40,000
- Monthly rental = £350
- Annual rental – £350 x 12 = £4,200
- Mortgage interest, letting agent’s fees, building insurance, repairs and and maintenance = £2,500
- Net Yeild = (£4,200 – £2,500) / £40,000 x 100 = 4.35% Net Yield
3. Go with your gut feel once you have visited the property.
After going to the property, trust your good feeling about whether to buy it. Things to consider:
- Would you like to live in the property?
- Would a single, (female) occupant feel safe living in the property by themselves and the surroundings?
- Would it be easy to sell if you needed to release your capital investment at short notice?
- Will it rent out easily?
There are many other gut feelings to consider when buying a property. Remember, it’s a buyer’s market in Jan 2012, so it if doesn’t feel right, move on and buy some thing else!