Wednesday, 21 September 2011

Buy-to-let property: How to choose the right property

Buying a home and then renting it out makes sense in a booming tenants' market. But how do you select the right home and what are the pitfalls?

With the rental market going gangbusters and more home owners deciding to hold onto their properties rather than sell them in a challenging market, buy-to-let is having a bit of a moment.
But is it for you?

At the moment, the average rental yield of a UK property is 4.8% and if the upwards trend continues, then it’s set to rise even further. London, as you’d expect, has the highest rental yield of all regions – at 5.4%, followed by Scotland, with an average rental yield of 5.2%, according to the latest rental index.

So healthy rental yeilds are very good news for buy-to-let, but experts say another key to maximising returns on these types of investments is ensuring that the home you purchase has the strongest letting potential. That's because a house or flat that is located in a good street, within easy reach of amenities and reliable transport links should attract a lot of high quality tenants.

Simon Hedley, managing director of Marylebone estate agents Druce advises that it’s nearly always better to buy a smaller, high quality property rather than a larger, low quality property.

“If you have £500,000 to spend, buy the best two bedroom flat rather than the worst three bedroom,” says Hedley. “A quality property is more likely to hold its value and will attract better tenants.” 

Hedley also warns would-be buy-to-let landlords to think carefully and weigh up pros and cons before purchasing a property. For instance, lower ground floor flats can be unpopular with prospective tenants particularly if they lack security and light, although a garden is usually always a drawcard. Apartments on upper floors in buildings with no lifts and lots of stairs to climb may also put some tenants off, while traffic noise can make a home less desirable, but this can be reduced with double glazing.

“Look for a property that offers something extra, that lifts it above the rest and makes it stand out,” Hedley says. “High ceilings, a feature window or a terrace all add letting potential.”

There are also practical questions to consider when selecting a buy-to-let property. Wooden floors are a plus as they don’t get stained and need replacing in the way that carpets do and this could save you money in the long term. Well-fitted kitchens and bathrooms that are easy to clean will also help the property stay tenant friendly for longer.

Hedley says that while there is a market for letting both furnished and unfurnished properties, most tenants prefer properties to be furnished.

In general, buy-to-let is a long term prospect. “I am a big believer in putting money back into the property every so often to keep it looking sharp and ahead of the game,” Hedley says. “Doing this should enable you to let the property for more money and increase your return over the years.”

But good management is also essential to keep tenants happy. Consider managing the property yourself only if you can respond to tenant queries in good time. But if you live overseas or are unable to respond to problems within 24 hours, then a letting agent will likely be your best option.

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