There are five key rules to securing the perfect buy to let investment, including the consideration of location, market, and exit strategy. Primarily, the area in which the investment property is situated is a crucial element to its success. Prime postcodes and popular addresses vastly increase property values, as do important features for tenants such as local amenities like shopping and entertainment facilities. Transport links and local schools are also important considerations. The experts from letting agent Belvoir look at the best strategies.
Owner of Belvoir Melton Mowbray and Belvoir Bingham Charlotte Baker commented: ‘Think about crime rates in the area where you will be investing. Ensure it is a desirable location for tenants and a place where they would be happy to live. Personal safety and a secure environment for their possessions are often at the top of a tenant’s wish list. Investing in a property in a low crime rate area and with a good reputation is also advisable in order to attract good quality tenants… and essentially to protect your asset too.’
A further consideration for investors is their target market. It is important to avoid choosing a property of your own personal preference as opposed to one which will achieve a successful yield. Owner of Belvoir Bolton Mike Stuttard adds: ‘It is also important to consider the quality of the property and the types of tenants that it will attract from a dilapidation point of view. A rental yield may be considered high, but if the property is not looked after because of the type of tenant that is attracted, resulting in high refurbishment costs on a regular basis, then the overall return on the investment will be affected. Keeping void periods to a minimum is also important, so areas with a high tenant demand should be considered.’
Locating a financially sound investment is also crucial, something which requires more than merely searching for the property which can achieve the highest rental yield. Sales prices must also be assessed in conjunction with your current financial situation, and mortgages as well as capital for potential renovations must be considered. Mike advises landlords to look for a property in a location with a ‘reasonable capital appreciation.’
He said: ‘Buying a financially sound investment is not as straight forward as finding a property that can achieve the highest rental yield. I advise my landlords that it is also important to look for a property in a location with a reasonable capital appreciation. When taking the rental value as well as capital appreciation into account, the overall return on the investment can be seen. If a landlord is looking at a short to medium term investment (say up to five years), they will probably need to look at properties in an area with a higher capital appreciation, whereby their return on investment will be primarily the profit achieved on the sale price. Landlords looking for a more long-term project (i.e. the property being used as a pension) should look for a good mix of rental yield plus capital growth.’
Exit strategies should be assessed before committing to an investment property, and long and short term goals must be considered. Charlotte explained: ‘Your intentions should be clear in order for you to get the most out of your investment – if you don’t know what your exit plan is from the very beginning then you can’t choose wisely. You need to know how long you’re intending to keep the property and if it will be able to achieve the right return given these timescales – whether that be through rental return, capital appreciation or both. Have a clear exit plan from the outset and, if your personal circumstances change, then re-evaluate your property portfolio to make sure it’s still meeting with your investment requirements.’
Finally, an expert opinion should be sought. A good letting agent will aid you in finding the best investment for you and help you fulfil the other necessary factors such as identifying an appropriate target market as well as offering ‘sound independent advice.’