Tips for buying a rental property
Whilst it is possible to make money by investing into property and, being a landlord should not be hard, it is easy to go wrong along the way. Here are some tips any new landlords may find handy.
- The Right Property
Buying the right property is crucial. Always try to purchase a type of property in an area with a good rental demand and check that the level of return is adequate, after expenses. Researching via the web and speaking to a good local agent is probably the best way to start. Let your head rule over your heart - as a property you fall in love with may not necessarily make a great rental; remember, you are not going to be living yourself, keep it practical.
Do not just accept a potential rental value from the agent who is trying to sell you the property. Always carry out further research, looking at other similar properties and the rent they’ve achieved.
If you build a relationship with a letting agent you trust and hope to use, then they should be happy to provide you independent, realistic rental valuations on any property you see; even if not being sold by their sales department.
- The Maths
It is very important to make sure you have factored in all the costs when calculating a return on a property prior to committing to the purchase.
Decide what your objectives are, whether to break even and look towards long term capital growth from an increase in value or whether you need to make a certain level of immediate income or profit. Remember to build in all costs; agent fees, ground rent, service charges, insurance etc. You should allow for at least one months’ possible void each year and a percentage of income should be set aside for possible maintenance costs and property improvements.
- Don’t be too greedy
Obviously, you want to make the most out of your investment but if you set your rent too high it may take longer to find a tenant and you may find yourself with an empty property. An empty property is lost rent you will never recover as well as incurring other expenses such as council tax etc.
- Don’t waste money
Making sure your investment is safe, clean and kept to a good standard is crucial . But, do not get carried away with renovating thinking you will achieve a lot more rent. Before spending ask the question does it need to be done and how much value or increased rent will be achieved. If unsure then ask your agents advice.
- Finding the right tenant
The key to a successful tenancy is having a good tenant. The majority of tenants are reasonable and responsible - but unfortunately there are some that are not. If you employ an agent to find you a tenant then ask them to explain what checks they do. A good agent will use an independent third party to conduct these checks which should include a detailed credit score, fraud score and a report of addresses that the tenant is linked to and any bad credit located against them. They will also contact any current landlord to see if they have been good tenants, paid their rent on time and looked after their property. In addition they will also check their employment and that they can afford the rent for the term of the tenancy.
Since February 2016 it is now a landlord’s legal responsibility to check, and document, a tenants right to legally rent in this country. Failure to do so could result in a criminal offence.
- Employing an agent to manage your property
In keeping your costs down you do not have to employ an agent, you can choose to manage the property yourself. If you choose this route then make sure you are happy to be proactive. Visit the property on a regular basis to carry out internal inspections and make sure the tenants have your contact details in case of emergency - day or night.
Employing an agent to manage the property may seem expensive but it will take away a lot of the responsibility and stress from you. Obviously you need to factor the cost of this into your overall budget. One major benefit you may gain, depending on the agent you choose, is a rent guarantee. You can buy independent rent guarantees but these can be expensive whereas an agent may provide you a rent guarantee included in their management fee.
One of the most important benefits of employing a managing agent is that they should keep you within the law. The legislation concerning landlords and rental properties is complicated and can be confusing. In choosing an agent look for a licensed member of the Association of Residential Letting Agents (ALRA). Look for their ARLA logo.
Do not be put off but all the red tape and legislation. Being a landlord can be rewarding & provide a good investment - but make sure you do your homework.