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What are the Key Qualities to Look for when Buying a
Buy to Let? |
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NOT
YET PUBLISHED
So,
what are the key qualities you should look for when
buying a buy to let?
This may seem an obvious question with obvious answers,
but it is well worth reminding ourselves of the key
things to be looking for when choosing a buy to let
property.
What
would you put at the top of the list?
- High
rental yield?
- Or
price secured below surveyed value?
- Or
low ratio between house prices and income?
- Low
Supply of similar properties?
- Or
clear exit strategy?
- Or
within 5 minutes of your home?
- Finance
available, and borrowing rates?
Everyone
has their own ideas of what is best, and some people
will prioritise each of these. Our focus has always
since we started sourcing 6 years ago, and investing
10 years ago, been concentrating on good rental yields
and the most affordable areas of the UK.
Let's
look at each of these factors individually:
- High
Rental Yield -
If you are looking to buy a property to rent out
then clearly a high rental yield is attractive.
A quick reminder on how we work out yield - take
the annual rent and divide by the value/buying price.
So if you can rent the property out for £500
a month that would be gross rent of £6000
a month. And if the property is worth £100,000
then the rental yield is 6%. I would be aiming for
a minimum of 7% yield - although as will mention
below this can vary depending on borrowing rates.
- Price
Secured below Surveyed Value -
Price secured is important and many would say the
discount to value is the most important part of
buying. I would agree this is very important, although
the yield is still more important if looking to
buy to let. Is there a minimum level of discount
to aim for? Not as far as I am concerned - there
have been plenty of times I have paid full market
value for property, due to the yield and local affordability
being attractive. However if you can get the yield
you are looking for, the local affordability, plus
a strong discount then even better!
- Low
Ratio between Income and House Prices -
This is very important as this gives you an idea
of how likely prices are going to go, going forward
over the next 5 years - plus gives you confidence
of there being local buyers to buy from you in the
future. I would aim in the UK at areas that have
houses at around 3-5 times the local salaries.
Again as you build up your portfolio you may find
some properties that fall outside this that are
still worth going for, and this is fine - but as
a general rule of thumb aim for this ratio.
- Low
Supply of Similar properties -
Again a very attractive thing is to aim for areas
where there are very few other rental properties
- as clearly this means you have less competition!
So ideally aim for streets where there are 70% owner
occupiers. Again this also is good for when come
to resell, as shows locals want to live here!
- Or
within 5 minutes of your home -
For some who want to be hands on, this is very important.
They want to be able to drive past their property,
or be on hand if there are any issues, and self
manage. For many others this is not as important,
and many do not want direct contact with their tenants!
It is certainly easier to manage your properties
if they are in the same country as you, as there
are no time differences, and no language issues.
I personally go for areas where the numbers work,
and own properties in the UK and Overseas managed
by around 15 different management areas. In fact
I own some properties close to my home and yet have
not seen them, as this is not my priority.
- Finance
available, and borrowing rates -
This makes a difference clearly, as with finance
available, prices are likely to rise. If lenders
are willing to lend a high loan to value on the
properties this gives a good idea that they are
pleased with the area and the security they give.
Borrowing rates are clearly very important - if
you can get borrowing rates of 2% below the rental
yields then this is clearly more attractive than
if the borrowing rates are the same as the rental
yields.
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So
these key areas are all very important when analysing
a new property deal.
Hopefully
by analysing these, you can see why an apartment on
a Bulgarian golf course or beach is not as attractive
an investment as say a 3 bed terraced property in Liverpool
at £90,000 renting for £550 a month...!
So in summary, I would aim for properties whether in
the UK or Overseas, offering a rental yield of around
7%, or 2% above borrowing rates, in areas where prices
are between 3-5 times the local salaries, and then aim
to get as good a discount as possible!
As
mentioned above this is only a general rule - and you
may well get excellent investments outside these figures
- but you will not go far wrong if you aim for this
when investing in buy to let.
If
you would like to form a strategy to suit your own personal
situation, then we would be delighted to discuss with
you on a One to One basis either over the phone or face
to face. To arrange a consultation, you can call us
on 0115 9853963
Hopefully
this can help you understand why below market value
property in the UK is such a fantastic opportunity right
now! These next 6 months are a fantastic opportunity,
make sure you do not miss the boat!
Regards
Alan |
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enquire further, and receive our free copy of
“7 Fatal Mistakes to Avoid as an Investor”
sign
up here |
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