Buy to Let investment advice

If you are considering investing in a rental property then here are some tips from one of the leading letting agents in Cardiff, Belvoir!

There is currently very strong demand for rental properties in and around Cardiff and sometimes it seems that almost any property would be a good rental investment. But remember, your ownership of a rental property is likely to be on a medium to long term basis and as such it will need to consistently deliver over this time period. During your time as a Landlord your property may largely stay the same but the UK economy, the local economy and property market are likely to change, considerably.

Start with the end in mind. Why are you investing? For how long will you invest? What do you want to achieve?

Are you looking to build a property portfolio that is based on the value of the property increasing? (Capital growth) With many pensions and investment markets underperforming people are taking things into their own hands and are creating and building their own pension through property.

Are you looking for a monthly income from property? Whilst it’s always important to get your figures right, in order to make a worthwhile monthly profit you need to ensure that you accurately budget costs and income.

Ideally you will be looking to achieve capital growth and a monthly income. This should be possible; however with a volatile housing market a long term approach may be required. 

Follow some key points to ensure your property will rent all year round and will continue to be a sought after rental property over the long term.

Location, Location, Location. BUT you are not looking to live in this property so forget your preferred location to live, look from a tenants’ perspective. What will attract tenants to your property?

A good start is to look for a property that has basic amenities close by and is also close to good transport links. This will appeal to number of tenant types. If you are looking to rent to families then access to local schools and possibly a good garden are important.

Look for local facilities that attract renters. Universities are an obvious choice but that doesn’t mean you have to get involved in student lettings. Universities, large employers and large hospitals all attract renters. Doctors, lecturers and employees may be relocating for a set period of time and so are happy to rent. Also, these renters create demand for different property types, meaning there should be an investment opportunity that fits your budget. Cardiff’s University Hospital supplies a wealth of renters around the Heath and Gabalfa areas with a range of requirements, from single rooms in shared housing right through to large executive houses.

Property choice and rental yield.

Compare property prices and rental Income in your investment location.
Before you buy a property check the letting potential with an independent lettings specialist, one that does not offer property sales so that there is no conflict of interest. A specialist letting agent will provide information on the best rental properties whereas a lettings and sales agent will likely only provide information on the properties that they have for sale.

Although the ‘cost of purchase’ and ‘rental income’ is a good starting point for helping to decide on your shortlisted properties there is a more encompassing measurement, yield.

Yield is expressed as a percentage and is often used to measure the return on investment for different properties. It’s also used by people who want your investment money and they use it to demonstrate that their investment ‘opportunity’ is better than any others.

My simple advice here is do not accept anyone’s yield figure until you have checked it yourself. Property investment needs to work for you, so if yields are being mentioned then ensure you get a full breakdown of how the yield is calculated, and then perform your own calculation.

Here’s a basic yield calculation –

Cost of property £120,000

Rental income £900 per month, £10,800 per annum

Yield = Annual rental income divided by Property costs (multiplied by 100 to get a percentage)

£10,800 / £120,000 * 100 = 9%... Not Bad! Except that your actual costs will include far more than just the property cost.

What about insurance, void periods, maintenance, set up costs, letting costs etc. All of these have an impact on the yield and that is why you should never trust a yield calculation unless you have checked it yourself, you just don’t know what has been left out of the calculation or what assumptions have been made.

For completeness the basic calculation above is generally known as gross yield, it’s simply the property costs against the rental income. It does have some value for comparison purposes s but it shouldn’t be used to estimate your income from an investment.

The more comprehensive yield calculation will give you the net yield and this is a far more accurate basis from which to estimate your income from a property.

In these news articles we look at a rental property investment. This article deals with acquiring the right property. Future articles will look at the rental process and managing the property and tenants.