Your guide to purchasing an investment property
Whether you’re looking to gain monthly profit from a tenant or grow your money in a capital investment, property is a fantastic way to make additional income. There are however things to consider before buying, see our top tips before you make the jump…
As with any property advice, each property and buy-to-let situation is different, so be sure to ask for specific advice before you get started. Agents can often spot an incredible opportunity and can guide you in the right direction. Make sure you talk to an experienced agent you can trust.
1. Calculate your yield
A rental yield tells you how much of an annual return you are likely to get on your investment.
Gross rental yield calculation:
(Annual rent ÷ property purchase price) x 100 = gross rental yield
For example… (£6,000 ÷ £150,000) x 100 = 4.4%
Calculate the potential return on any rental property you are considering buying to help evaluate if it has investment potential. Speak to a local letting agent to get an idea of the projected rent for the property, be mindful that the selling agent may inflate this figure so ask around.
2. Consider capital growth
Capital growth (also known as capital appreciation) is the value to which a property goes up in value over time. You can calculate capital growth by finding the difference between the current market value of your investment and the price you initially purchased it for.
3. Check for demand
Certain areas and types of property attract a higher demand from tenants than others. When you’re searching for an investment property, make sure you speak to a local letting agent who will be able to advise you about demand in each area.
4. Look for convenience
Parking, access to transport links, local amenities, and schools - all these things will increase the property’s appeal to tenants.
5. Widen your target market
Think about buying a property which will appeal to a wide section of renters rather than what would be your personal preference. This will increase the demand, helping to maintain a good rental value and minimise void periods.
6. Consider the property itself
Location is key. Is the property somewhere people want to live?!
Think about access and parking, are these things in line with what you would expect. i.e a tenant renting a 3 bedroom family home is more likely to expect and need parking than a single person walking to the train station commuting. What is the property layout? A ground floor bathroom, or bathrooms off of bedrooms are less popular. Also consider the property’s location and if the garden is proportional to the property. Make use of your local lettings agent, they should be experts on tenants expectations.
7. Estimate your cost of maintenance and repair
All outgoings - including any routine maintenance and repair - will impact on your net rental yield; so factor this in when deciding on what type of property to invest in. Consider the age of the property along with the electric and central heating systems – how old are they? Has the property been well maintained. Remember all properties let in England will need to pass a gas safety certificate and electrical certificate before they can be let.
8. Factor in fees
Count in your mortgage re-payments, agency fees and the expected cost of building insurance and rent protection insurance. You will typically find that leasehold properties might be cheaper to buy but will have annual management fees and/or ground rents which you need to calculate into your yield.
9. Minimise voids
A void period is the name given when a property is vacant and results in a loss of income. Choosing the right tenants right from the start and building a good relationship with your tenants can help keep void periods to a minimum.
10. Check the Energy Performance Certificate
Since October 2008, rental properties in England and Wales have required an Energy Performance Certificate (EPC). On April 1st 2018, the Minimum Energy Efficiency Standards (MEES) came into force. This required all properties being let or sold in England and Wales to have a minimum EPC rating of ‘E’ or above. From 1st April 2023, the Minimum Energy Efficiency Standards apply to all existing tenancies – not just new ones or renewals.
The government have proposed that all rental properties will need an EPC rating of ‘C’ or above by 2025. Like the previous changes, the new regulations will be introduced for new tenancies first, followed by all tenancies from 2028. Check the Energy Performance Certificate (EPC) of the property before making an offer.
11. CASH FLOW & Affordability!!
Research mortgage options and calculate your likely profit. Decide how much you’ve got to spend and consider the cost of repairs and maintenance. You cannot rely on the tenants rent to pay the mortgage or carry out repairs. Remember you have a legal responsibility to ensure the property is safe, in some cases maintenance will need to be actioned and paid for immediately. Make sure you have a ‘float’ in the bank to cover these unexpected costs and to cover the mortgage should your tenant be unable to pay their rent.
Ready to get started? Get in touch to see what potential buy-to-let properties we have available or with questions about becoming a landlord. We are here and ready to help!