Introduction for first time landlords thinking about buying an investment property, there are many issues to consider. This article looks at the basic legal processes of buying a UK property, comparing local areas and the types of tenants, investors might like to consider before becoming a landlord.
The Property Purchase Process – the practical and legal process of buying an investment property is identical to that of a normal residential purchase in most respects. Most people start by checking out particular areas are interested in via the estate agents websites, to get the feel of the types of rental values achievable within a target area. Assuming that buy to let it’s finance has already been obtained, the first step is to meet up with local estate agents and show that you are a serious buyer. Estate agents have a good local knowledge of types of properties, the sort of rental demand and rental value ceilings in their local area. Most agents will go through basic fact-finding exercise to narrow down the list of possible properties you may be seeking as a landlord. The practical and legal processes for purchasing a property identical to that of a normal residential purchase in that you will need to employ a solicitor, pay stamp duty, make an offer, negotiate, asked questions during the conveyancing process of the seller, undertake searches, initiate surveys and complete on the property the above has been satisfactorily administered.
Types of Tenants – however, before you choose what type of property to buy you will need to think about the types of tenants you’re trying to target. Your property must meet your target market’s needs and requirements, even if you personally would want to live in the property yourself. You maybe decide to choose the student market near local universities. This will typically involve viewing older and larger properties where students can share a house. Students are prepared to accept a lower standard of accommodation and will typically create more mess and dilapidation, when compare to a family let. High frequencies of insurance claims on landlord buy to let insurance polices may also mean higher premiums in future years. Mortgage lenders are becoming increasingly hostile to high-risk rental groups which may impact future rental returns to landlords and subsequent mortgage repayments to the lenders themselves. Students tend to come and go and may leave the property empty for long periods during the summer breaks.
Professional couples represent a lower risk tenant group in that they have more money than students. They are less likely to create repairs and maintenance costs for the landlord in the long run and will typically need to be nearby work and spend less time during the day in the property itself. Professional couples also tend to demand and expect a better quality of interior furniture and fixtures. Professional couples tend to be between 20 and 30 years old and will not suffer fools gladly and will demand action when things like the boiler break. Most professional couples tend to choose convenient modern locations like converted flats in a block.
Families are prepared to pay the most rent part of the major tenant groups. They will expect the highest quality accommodation in return and will need a high quality property that is child friendly, close to local schools and in a quiet residential neighbourhood. Many renting families prioritise their choice of rental property according to the postcodes of local schools. A typical family property would be a four bedroom semi or detached property in reasonable upkeep in a low risk suburb or country location.
When identifying the needs of your market, you will also need to think about the type of tenancy contract to offer your local market. These may include short term rentals, long term lets, holiday rentals and common place short term tenancy agreements.
Where to Find Property for Sale – there are also other sources of possible houses for sale apart from estate agents. Buying off plan properties directly from a developer means putting down a deposit on a new built property which would be highly attractive to tenants due to it’s modern facilities. Alternatively it is possible to buy a property directly from the seller and cut out the middleman’s commission. In light of the recession and credit squeeze, more and more private sellers are opting to choose this route as a means of saving money while controlling the negotiation process. Check local papers for properties for sale advertised directly by private sellers.
Many landlords choose to buy their investment properties at auction. Typically repossess properties appear in auctions or properties that require significant redevelopment and improvement. This basically means they are cheaper and may require some investment from the landlord in the short term. With the level of repossessions rising in the UK, an auction is a great place for landlords who are prepared to take a bit of a risk. It is imperative that any structural surveys are undertaken before any bidding takes place on the day. In addition, auction houses will expect written proof of mortgage approval prior to acceptance of the bid.
Analysing the Local Area – when you have decided which mechanism is best suited to facilitate the purchase the property, one of the first buying criteria should be to analyse the local area and satisfy yourself that it is ideal for letting purposes. Inner cities in central location is usually command higher rents than remote locations in the countryside. However, the quality of the combination and external factors also play a large part in dictating the prevailing local market rental rates. For instance, look at the area in terms of the quality of transport links within walking distance of the properties on offer. These may include motorways, public transport such as buses and trains links. Tenants will also be looking for properties to rent close to convenience shops and schools ( if the target market families). People also like the convenience of being there leisure activities such as in theatres, pubs and restaurants and so on.
Viewing Investment Properties – viewing potential properties is usually time-consuming as well as a fun exercise. It’s best to be well organised with estate agents contact details to hand in case of last-minute changes by sellers or agents themselves. Try and organise to see a dozen or so properties in one-day to get a good feel, selection and comparison. Always remain objective when assessing the quality of the properties and ignore your personal tastes compared to those of the sellers (in terms of decorations, colour schemes and contents).
The most important thing is to look for major structural defects such as subsidence and problems with damp or problems with roofs. Check the quality of the gas fittings and boiler as well as the age and condition of the electrical fuse box. Older properties may need modernising to ensure they meet with legal requirements for health and safety, from the perspective of tenants. Straight after you have left the viewing, sit down and write down objectively the positive and negative aspects of the property and the likely action required to modernise and improve the property, to meet your individual requirements of the letting.
Assetsure provides UK landlord buy to let insurance for buildings and contents for private landlords, letting agents and property management companies in the United Kingdom.